SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM 10-Q
(Mark One)
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x
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QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For
the quarterly period ended March 31, 2009
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or
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o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For
the transition period from ______________ to ______________
Commission
file number: 001-13178
MDC
Partners Inc.
(Exact
name of registrant as specified in its charter)
Canada
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98-0364441
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(State
or other jurisdiction of
incorporation
or organization)
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(IRS
Employer Identification No.)
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45 Hazelton Avenue
Toronto,
Ontario, Canada
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M5R
2E3
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(Address
of principal executive offices)
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(Zip
Code)
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(416)
960-9000
Registrant’s
telephone number, including area code:
950
Third Avenue, New York, New York 10022
(646)
429-1809
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer. See definition of “accelerated
filer” and “large accelerated filer” in Rule 12(b)-2 of the Exchange Act
(check one)
Large
Accelerated Filer o
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Accelerated
Filer x
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Non-Accelerated Filer o (Do not check if a smaller reporting company.)
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Smaller
reporting company o
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Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes
o No x
APPLICABLE
ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE
YEARS:
Indicate
by check mark whether the registrant has filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Act subsequent
to the distributions of securities under a plan confirmed by a
court. Yes o No o
The
numbers of shares outstanding as of May 1, 2009 were: 28,059,978 Class A
subordinate voting shares and 2,503 Class B multiple voting
shares.
Website
Access to Company Reports
MDC
Partners Inc.’s internet website address is www.mdc-partners.com. The Company’s
annual reports on Form 10-K, quarterly reports on Form 10-Q and
current reports on Form 8-K, and any amendments to those reports filed or
furnished pursuant to section 13(a) or 15(d) of the Exchange Act, will
be made available free of charge through the Company’s website as soon as
reasonably practical after those reports are electronically filed with, or
furnished to, the Securities and Exchange Commission.
MDC
PARTNERS INC.
QUARTERLY
REPORT ON FORM 10-Q
TABLE
OF CONTENTS
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Page
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PART I.
FINANCIAL INFORMATION
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Item
1.
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Financial
Statements
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2
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Condensed
Consolidated Statements of Operations (unaudited) for the Three Months
Ended March 31, 2009 and 2008
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2
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Condensed
Consolidated Balance Sheets as of March 31, 2009 (unaudited) and
December 31, 2008
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3
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Condensed
Consolidated Statements of Cash Flows (unaudited) for the Three Months
Ended March 31, 2009 and 2008
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4
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Notes
to Unaudited Condensed Consolidated Financial Statements
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5
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Item
2.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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18
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Item
3.
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Quantitative
and Qualitative Disclosures about Market Risk
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32
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Item
4.
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Controls
and Procedures
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32
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PART II.
OTHER INFORMATION
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Item
1.
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Legal
Proceedings
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33
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Item
1A.
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Risk
Factors
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33
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Item
2.
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Unregistered
Sales of Equity and Use of Proceeds
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33
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Item
4.
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Submission
of Matters to a Vote of Security Holders
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33
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Item
6.
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Exhibits
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Signatures
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34
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Item
1. Financial Statements
MDC PARTNERS INC. AND
SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(thousands
of United States dollars, except share and per share amounts)
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Three Months Ended March 31,
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2009
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2008
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Reclassified
(Note
1 )
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Revenue:
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Services
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$ |
126,738 |
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$ |
140,902 |
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Operating
Expenses:
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Cost
of services sold
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85,879 |
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|
95,519 |
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Office
and general expenses
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31,152 |
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34,455 |
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Depreciation
and amortization
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|
7,593 |
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9,776 |
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124,624 |
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|
139,750 |
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Operating
profit
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|
2,114 |
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|
1,152 |
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Other
Income (Expenses):
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Other
income, net
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|
2,629 |
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|
3,627 |
|
Interest
expense
|
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|
(3,761 |
) |
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(3,911
|
) |
Interest
income
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|
203 |
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|
467 |
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(929 |
) |
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183 |
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Income
from continuing operations before income taxes, equity in
affiliates
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|
1,185 |
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|
1,335 |
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Income
tax expense (recovery)
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|
615 |
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(292 |
) |
Income
from continuing operations before equity in affiliates
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|
570 |
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1,627 |
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Equity
in earnings of non-consolidated affiliates
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93 |
|
|
|
140 |
|
Income
from continuing operations
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|
663 |
|
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|
1,767 |
|
Loss
from discontinued operations attributable to MDC Partners Inc., net of
taxes
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|
(252 |
) |
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|
(3,036
|
) |
Net
income (loss)
|
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|
411 |
|
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|
(1,269
|
) |
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|
|
|
|
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|
Net
income attributable to the noncontrolling interests
|
|
|
(382 |
) |
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|
(2,125
|
) |
|
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Net
income (loss) attributable to MDC Partners Inc.
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$ |
29 |
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|
$ |
(3,394 |
) |
Income
(loss) Per Common Share:
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Basic
and Diluted:
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Income
(loss) from continuing operations attributable to MDC Partners Inc. common
shareholders
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$ |
0.01 |
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|
$ |
(0.01 |
) |
Discontinued
operations attributable to MDC Partners Inc. common
shareholders
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|
(0.01 |
) |
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(0.12
|
) |
Net
income (loss) attributable to MDC Partners Inc. common
shareholders
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$ |
0.00 |
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$ |
(0.13 |
) |
Weighted
Average Number of Common Shares Outstanding:
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Basic
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27,115,751 |
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26,497,163 |
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Diluted
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27,115,751 |
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26,497,163 |
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Non
cash stock-based compensation expense is included in the following line
items above:
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|
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|
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Cost
of services sold
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$ |
211 |
|
|
$ |
240 |
|
Office
and general expenses
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|
1,686 |
|
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|
1,758 |
|
Total
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|
$ |
1,897 |
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|
$ |
1,998 |
|
See notes
to the unaudited condensed consolidated financial statements.
MDC
PARTNERS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE
SHEETS
(thousands
of United States dollars)
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March
31,
2009
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December 31,
2008
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|
(Unaudited)
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(Reclassified)
(Note
1)
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ASSETS
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Current
Assets:
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Cash
and cash equivalents
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$ |
46,247 |
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$ |
41,331 |
|
Accounts
receivable, less allowance for doubtful accounts of $2,253 and
$2,179
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|
116,219 |
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106,954 |
|
Expenditures
billable to clients
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18,380 |
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|
16,949 |
|
Prepaid
expenses
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|
5,668 |
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|
5,240 |
|
Other
current assets
|
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|
5,145 |
|
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|
5,270 |
|
Total
Current Assets
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|
191,659 |
|
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|
175,744 |
|
Fixed
assets, at cost, less accumulated depreciation of $72,182 and
$69,018
|
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|
40,798 |
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44,021 |
|
Investment
in affiliates
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|
1,692 |
|
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|
1,593 |
|
Goodwill
|
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|
237,270 |
|
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|
238,214 |
|
Other
intangibles assets, net
|
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|
43,257 |
|
|
|
46,852 |
|
Deferred
tax asset
|
|
|
11,321 |
|
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|
11,926 |
|
Other
assets
|
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|
10,088 |
|
|
|
10,889 |
|
Total
Assets
|
|
$ |
536,085 |
|
|
$ |
529,239 |
|
LIABILITIES,
REDEEMABLE NONCONTROLLING INTERESTS, AND EQUITY
|
|
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|
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|
|
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|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
66,353 |
|
|
$ |
75,360 |
|
Accruals
and other liabilities
|
|
|
58,985 |
|
|
|
55,338 |
|
Advance
billings
|
|
|
56,663 |
|
|
|
50,053 |
|
Current
portion of long-term debt
|
|
|
1,519 |
|
|
|
1,546 |
|
Deferred
acquisition consideration
|
|
|
3,436 |
|
|
|
5,538 |
|
Total
Current Liabilities
|
|
|
186,956 |
|
|
|
187,835 |
|
Revolving
credit facility
|
|
|
19,567 |
|
|
|
9,701 |
|
Long-term
debt
|
|
|
132,872 |
|
|
|
133,305 |
|
Convertible
notes
|
|
|
35,677 |
|
|
|
36,946 |
|
Other
liabilities
|
|
|
8,914 |
|
|
|
6,949 |
|
Deferred
tax liabilities
|
|
|
4,589 |
|
|
|
4,700 |
|
|
|
|
|
|
|
|
|
|
Total
Liabilities
|
|
|
388,575 |
|
|
|
379,436 |
|
|
|
|
|
|
|
|
|
|
Redeemable
Noncontrolling Interests (Note 13)
|
|
|
57,037 |
|
|
|
21,751 |
|
Commitments,
contingencies and guarantees (Note 12)
|
|
|
|
|
|
|
|
|
Shareholders’
Equity:
|
|
|
|
|
|
|
|
|
Preferred
shares, unlimited authorized, none issued
|
|
|
— |
|
|
|
— |
|
Class A
Shares, no par value, unlimited authorized, 27,424,433 and 26,987,017
shares issued in 2009 and 2008
|
|
|
217,543 |
|
|
|
213,533 |
|
Class B
Shares, no par value, unlimited authorized, 2,503 shares issued in 2009
and 2008, each convertible into one Class A share
|
|
|
1 |
|
|
|
1 |
|
Additional
paid-in capital
|
|
|
— |
|
|
|
33,470 |
|
Charges
in excess of capital
|
|
|
(6,347 |
) |
|
|
— |
|
Accumulated
deficit
|
|
|
(112,807 |
) |
|
|
(112,836
|
) |
Stock
subscription receivable
|
|
|
(340 |
) |
|
|
(354
|
) |
Accumulated
other comprehensive income
|
|
|
(8,461 |
) |
|
|
(6,633
|
) |
|
|
|
|
|
|
|
|
|
MDC
Partners Inc. Shareholders’ Equity
|
|
|
89,589 |
|
|
|
127,181 |
|
Noncontrolling
Interests
|
|
|
884 |
|
|
|
871 |
|
Total
Equity
|
|
|
90,473 |
|
|
|
128,052 |
|
Total
Liabilities, Redeemable Noncontrolling Interests and
Equity
|
|
$ |
536,085 |
|
|
$ |
529,239 |
|
See notes
to the unaudited condensed consolidated financial statements.
MDC
PARTNERS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS (unaudited)
(thousands
of United States dollars)
|
|
Three Months Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
income (loss)
|
|
$ |
411 |
|
|
$ |
(1,269 |
) |
Net
income (loss) attributable to the noncontrolling interests
|
|
|
(382 |
) |
|
|
(2,125
|
) |
Net
income (loss) attributable to MDC Partners Inc.
|
|
|
29 |
|
|
|
(3,394
|
) |
Loss
from discontinued operations attributable to MDC Partners Inc., net of
taxes
|
|
|
(252 |
) |
|
|
(3,036
|
) |
Income
(loss) attributable to MDC Partners Inc. from continuing
operations
|
|
|
281 |
|
|
|
(358
|
) |
Adjustments
to reconcile net income (loss) attributable to MDC Partners Inc. from
continuing operations to cash provided by (used in) operating
activities
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
4,017 |
|
|
|
3,997 |
|
Amortization
of intangibles
|
|
|
3,576 |
|
|
|
5,779 |
|
Non-cash
stock-based compensation
|
|
|
1,686 |
|
|
|
1,759 |
|
Amortization
of deferred finance charges
|
|
|
318 |
|
|
|
346 |
|
Deferred
income taxes
|
|
|
490 |
|
|
|
— |
|
Earnings
of non-consolidated affiliates
|
|
|
(93 |
) |
|
|
(140
|
) |
Other
non-current assets and liabilities
|
|
|
2,126 |
|
|
|
797 |
|
Foreign
exchange
|
|
|
(1,999 |
) |
|
|
(4,117
|
) |
Changes
in non-cash working capital:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(9,259 |
) |
|
|
(11,564
|
) |
Expenditures
billable to clients
|
|
|
(1,431 |
) |
|
|
(9,797
|
) |
Prepaid
expenses and other current assets
|
|
|
(256 |
) |
|
|
(811
|
) |
Accounts
payable, accruals and other liabilities
|
|
|
(5,138 |
) |
|
|
(20,270
|
) |
Advance
billings
|
|
|
6,610 |
|
|
|
23,391 |
|
Cash
flows used in continuing operating activities
|
|
|
928 |
|
|
|
(10,988
|
) |
Discontinued
operations
|
|
|
(368 |
) |
|
|
538 |
|
Net
cash provided by (used in) operating activities
|
|
|
560 |
|
|
|
(10,450
|
) |
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(830 |
) |
|
|
(4,177
|
) |
Acquisitions,
net of cash acquired
|
|
|
(3,352 |
) |
|
|
(5,487
|
) |
Proceeds
from sale of assets
|
|
|
2 |
|
|
|
136 |
|
Other
investments
|
|
|
59 |
|
|
|
(109
|
) |
|
|
|
|
|
|
|
|
|
Cash
Flows from continuing investing activities
|
|
|
(4,121 |
) |
|
|
(9,637
|
) |
Discontinued
operations
|
|
|
— |
|
|
|
(296
|
) |
Net
cash used in investing activities
|
|
|
(4,121 |
) |
|
|
(9,933
|
) |
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from revolving credit facility
|
|
|
9,866 |
|
|
|
16,660 |
|
Repayment
of long-term debt
|
|
|
(635 |
) |
|
|
(200
|
) |
Proceeds
from stock subscription receivable
|
|
|
13 |
|
|
|
— |
|
Purchase
of treasury shares
|
|
|
(320 |
) |
|
|
(874
|
) |
Net
cash provided by continuing financing activities
|
|
|
8,924 |
|
|
|
15,586 |
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
(447 |
) |
|
|
136 |
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
4,916 |
|
|
|
(4,661
|
) |
Cash
and cash equivalents at beginning of period
|
|
|
41,331 |
|
|
|
10,410 |
|
Cash
and cash equivalents at end of period
|
|
$ |
46,247 |
|
|
$ |
5,749 |
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures:
|
|
|
|
|
|
|
|
|
Cash
paid to noncontrolling partners
|
|
$ |
3,119 |
|
|
$ |
4,826 |
|
Cash
income taxes paid (refund received)
|
|
$ |
(66 |
) |
|
$ |
280 |
|
Cash
interest paid
|
|
$ |
2,738 |
|
|
$ |
2,737 |
|
Non-cash
transactions:
|
|
|
|
|
|
|
|
|
Share
capital issued on acquisitions
|
|
$ |
— |
|
|
$ |
2,360 |
|
Capital
leases
|
|
$ |
187 |
|
|
$ |
72 |
|
See notes
to the unaudited condensed consolidated financial statements.
MDC PARTNERS INC. AND
SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(thousands
of United States dollars, unless otherwise stated)
1.
Basis of Presentation
MDC
Partners Inc. (the “Company”) has prepared the unaudited condensed consolidated
interim financial statements included herein pursuant to the rules and
regulations of the United States Securities and Exchange Commission (the “SEC”).
Certain information and footnote disclosures normally included in annual
financial statements prepared in accordance with generally accepted accounting
principles (“GAAP”) of the United States of America (“US GAAP”) have been
condensed or omitted pursuant to these rules.
The
accompanying financial statements reflect all adjustments, consisting of
normally recurring accruals, which in the opinion of management are necessary
for a fair presentation, in all material respects, of the information contained
therein. Results of operations for interim periods are not necessarily
indicative of annual results.
These
statements should be read in conjunction with the consolidated financial
statements and related notes included in the Annual Report on Form 10-K for
the year ended December 31, 2008.
Effective
December 2008, three of the Company’s operating subsidiaries, Clifford/Bratskeir
Public Relations, LLC, Ito Partners, LLC and Mobium Creative Group (a division
of Colle + McVoy) have been deemed discontinued operations. All
periods have been restated to reflect these discontinued
operations.
In
accordance with the adoption of FAS 160 (See Note 13), Noncontrolling Interests
(formerly minority interests) have been reclassified in the prior periods to
conform with the current period presentation.
2.
Significant Accounting
Policies
The
Company’s significant accounting policies are summarized as
follows:
Principles of Consolidation.
The accompanying condensed consolidated financial statements include the
accounts of MDC Partners Inc. and its domestic and international controlled
subsidiaries that are not considered variable interest entities, and variable
interest entities for which the Company is the primary beneficiary. Intercompany
balances and transactions have been eliminated in consolidation.
Use of Estimates. The
preparation of financial statements in conformity with US GAAP requires
management to make estimates and assumptions. These estimates and assumptions
affect the reported amounts of assets and liabilities including goodwill,
intangible assets, valuation allowances for receivables and deferred tax assets,
and the reported amounts of revenue and expenses during the reporting period.
The estimates are evaluated on an ongoing basis and estimates are based on
historical experience, current conditions and various other assumptions believed
to be reasonable under the circumstances. Actual results could differ from those
estimates.
Fair Value
Measurements. The Company adopted Financial Accounting Standards
Board (“FASB”) Statement No. 157 “Fair Value Measurements” related to
nonfinancial assets and nonfinancial liabilities effective January 1,
2009. This statement defines fair value, establishes a framework for
measuring fair value in GAAP, and expands disclosures about fair value
measurements. This statement will apply whenever another standard requires
(or permits) assets or liabilities to be measured at fair value. The
standard does not expand the use of fair value to any new circumstances.
The effect of adopting this pronouncement did not have a material impact on the
Company’s financial position or results of operations.
Concentration of Credit Risk.
The Company provides marketing communications services to clients who operate in
most industry sectors. Credit is granted to qualified clients in the ordinary
course of business. Due to the diversified nature of the Company’s client base,
the Company does not believe that it is exposed to a concentration of credit
risk; however, one client accounted for approximately 12% and 17% of the
Company’s consolidated accounts receivable at March 31, 2009 and December 31,
2008, respectively. This client also accounted for 19% and 20% of revenue for
the three months ended March 31, 2009 and March 31, 2008,
respectively.
Cash and Cash Equivalents.
The Company’s cash equivalents are primarily comprised of investments in
overnight interest-bearing deposits, commercial paper and money market
instruments and other short-term investments with original maturity dates of
three months or less at the time of purchase. The Company has a concentration
risk in that there are cash deposits in excess of federally insured amounts.
Included in cash and cash equivalents at March 31, 2009 and December 31,
2008, is approximately $44 and $51, respectively, of cash restricted as to its
use by the Company.
Redeemable Noncontrolling
Interests. In accordance with EITF Topic No. D-98
“Classification and Measurement of Redeemable Securities”, (“D-98”), the Company
has recorded its put options at their current estimated redemption
amounts. D-98 requires that these obligations be recorded as
mezzanine equity. Changes in the estimated redemption amounts of the
noncontrolling interests subject to put options are adjusted at each reporting
period with a corresponding adjustment to equity. These adjustments
will not impact the calculation of earnings per share. At December
31, 2008, the Company has reclassified $21,751 of the originally reflected
minority interest of $22,622 to redeemable noncontrolling interests and $871 to
noncontrolling interests. The amount reclassified to redeemable
noncontrolling interests of $21,751 represents minority interest equity which
are subject to put obligations. In addition, the Company recorded
$37,849 to redeemable noncontrolling interests which represents the estimated
put option redemption amounts.
Revenue Recognition. The
Company’s revenue recognition policies are in compliance with the SEC Staff
Accounting Bulletin 104, “Revenue Recognition” (“SAB 104”), and accordingly,
revenue is generally recognized as services are provided or upon delivery of the
products when ownership and risk of loss has transferred to the customer, the
selling price is fixed or determinable and collection of the resulting
receivable is reasonably assured.
In
November 2002, EITF Issue No. 00-21, “Revenue Arrangements with Multiple
Deliverables” (“EITF 00-21”) was issued. EITF 00-21 addresses certain aspects of
the accounting by a vendor for arrangements under which it will perform multiple
revenue-generating activities and how to determine whether an arrangement
involving multiple deliverables contains more than one unit of accounting. EITF
00-21 is effective for revenue arrangements entered into in fiscal periods
beginning after June 15, 2003. Also, in July 2000, the EITF of the Financial
Accounting Standards Board released Issue No. 99-19, “Reporting Revenue Gross as
a Principal versus Net as an Agent” (“EITF 99-19”). This Issue summarized the
EITF’s views on when revenue should be recorded at the gross amount billed
because it has earned revenue from the sale of goods or services, or the net
amount retained because it has earned a fee or commission. The Company also
follows EITF No. 01-14, “Income Statement Characterization of Reimbursements
Received for Out-Of-Pocket Expenses”. This issue summarized the EITF’s views
that reimbursements received for out-of-pocket expenses incurred should be
characterized in the income statement as revenue. Accordingly, the Company has
included in revenue such reimbursed expenses.
The
Company earns revenue from agency arrangements in the form of retainer fees or
commissions; from short-term project arrangements in the form of fixed fees or
per diem fees for services; and from incentives or bonuses.
Non
refundable retainer fees are generally recognized on a straight line basis over
the term of the specific customer contract. Commission revenue is earned and
recognized upon the placement of advertisements in various media when the
Company has no further performance obligations. Fixed fees for services are
recognized upon completion of the earnings process and acceptance by the client.
Per diem fees are recognized upon the performance of the Company’s services. In
addition, for certain service transactions, which require delivery of a number
of service acts, the Company uses the Proportional Performance model, which
generally results in revenue being recognized based on the straight-line method
due to the acts being non-similar and there being insufficient evidence of fair
value for each service provided.
Fees
billed to clients in excess of fees recognized as revenue are classified as
Advanced Billings.
A small
portion of the Company’s contractual arrangements with customers includes
performance incentive provisions, which allows the Company to earn additional
revenues as a result of its performance relative to both quantitative and
qualitative goals. The Company recognizes the incentive portion of revenue under
these arrangements when specific quantitative goals are achieved, or when the
company’s clients determine performance against qualitative goals has been
achieved. In all circumstances, revenue is only recognized when collection is
reasonably assured. The Company records revenue net of sales and other taxes due
to be collected and remitted to governmental authorities.
Stock-Based Compensation. The
fair value method is applied to all awards granted, modified or settled on or
after January 1, 2003. Under the fair value method, compensation cost is
measured at fair value at the date of grant and is expensed over the service
period that is the award’s vesting period. When awards are exercised, share
capital is credited by the sum of the consideration paid together with the
related portion previously credited to additional paid-in capital when
compensation costs were charged against income or acquisition consideration. The
Company uses its historical volatility derived over the expected term of the
award, to determine the volatility factor used in determining the fair value of
the award. The Company uses the “simplified” method to determine the term of the
award.
Stock-based
awards that are settled in cash or equity at the option of the Company are
recorded at fair value on the date of grant and recorded as additional paid-in
capital. The fair value measurement of the compensation cost for these awards is
derived using the Black-Scholes option pricing model and is recorded in
operating income over the service period, which is the vesting period of the
award.
It is the
Company’s policy for issuing shares upon the exercise of an equity incentive
award to verify the amount of shares to be issued, as well as the amount of
proceeds to be collected (if any) and delivery of new shares to the exercising
party.
The
Company has adopted the straight-line attribution method for determining the
compensation cost to be recorded during each accounting period. However, awards
based on performance conditions are recorded as compensation expense when the
performance conditions are expected to be met.
In
February and March 2009, the Company issued 3,694,686 Stock Appreciation Rights
(“SARs”) to its employees and directors. The SARs have an exercise
price of $3.72 and one-third will vest on each of the anniversary dates of grant
in 2010, 2011 and 2012. The Company will be recording a non-cash stock based
compensation charge of $4,311 from the date of grant through 2012 for these SARs
awards.
For the
three months ended March 31, 2009, the Company has recorded a $270 charge
relating to these equity incentive grants. The value of the awards was
determined based on the fair market value of the underlying award using the
Black-Scholes Option Pricing Model. The weighted average fair value
of the awards was $1.17, based on a volatility range of 39.84% to 41.06%, risk
free interest range of 1.76% to 1.82%, no dividends and an expected life range
of 3 to 4 years.
A total
of 616,632 Class A shares of restricted stock, granted to employees as
equity incentive awards, are included in the Company’s calculation of
Class A shares outstanding as of March 31, 2009.
3.
Income (loss) Per Common
Share
The
following table sets forth the computation of basic and diluted loss per common
share from continuing operations.
|
|
Three Months Ended
March
31,
|
|
|
|
2009
|
|
|
2008
|
|
Numerator
|
|
|
|
|
|
|
Numerator
for basic income per common share – income from continuing
operations
|
|
$ |
663 |
|
|
$ |
1,767 |
|
Net
income attributable to the noncontrolling interests
|
|
|
(382 |
) |
|
|
(2,125
|
) |
Income
(loss) attributable to MDC Partners Inc. common shareholders from
continuing operations
|
|
|
281 |
|
|
|
(358
|
) |
Effect
of dilutive securities
|
|
|
— |
|
|
|
— |
|
Numerator
for diluted income (loss) per common share – income (loss) attributable to
MDC Partners Inc. common shareholders from continuing
operations
|
|
$ |
281 |
|
|
$ |
(358 |
) |
Denominator
|
|
|
|
|
|
|
|
|
Denominator
for basic income (loss) per common share - weighted average common
shares
|
|
|
27,115,751 |
|
|
|
26,497,163 |
|
Effect
of dilutive securities
|
|
|
— |
|
|
|
— |
|
Denominator
for diluted income (loss) per common share - adjusted weighted
shares
|
|
|
27,115,751 |
|
|
|
26,497,163 |
|
Basic
income (loss) per common share from continuing operations
|
|
$ |
0.01 |
|
|
$ |
(0.01 |
) |
Diluted
income (loss) per common share from continuing operations
|
|
$ |
0.01 |
|
|
$ |
(0.01 |
) |
The 8%
convertible debentures, options and other rights to purchase 9,067,422
shares of common stock, which includes 616,632 shares of non-vested
restricted stock, were outstanding during the three months ended March 31, 2009,
but were not included in the computation of diluted income per common share
because their effect would be antidilutive because of the market price of the
stock at March 31, 2009. During the three months ended March 31,
2008, the 8% convertible debentures, options and other rights to purchase
7,090,359 shares of common stock, which includes 487,624 shares of non-vested
restricted stock, were outstanding but were not included in the computation of
diluted loss per common share because their effect would be
antidilutive.
4.
Acquisitions
First
Quarter 2009 Acquisitions
Effective
January 22, 2009, the Company acquired an additional 8.9% of equity interests in
HL Group LLC, thereby increasing MDC’s ownership to 64.3%. The purchase price
totaled $1,100 and was paid in cash at closing. Pursuant to the adoption of FAS
141R and FAS 160 (Note 13), the Company recorded an entry to reduce Redeemable
Noncontrolling Interests, as this purchase was pursuant to the early exercise of
an existing put/call option. Accordingly, no additional intangibles have been
recorded. However, the amount of the purchase price will be tax
deductible.
2008
Acquisitions
Effective
December 31, 2008, the Company acquired an additional 6.3% of equity interests
in Accent Marketing LLC, increasing the Company’s ownership to 100%.
The aggregate purchase price totaled $4,830 and was paid in cash of $995 at
closing and repayment of outstanding loans of $1,830. The balance
aggregate of $2,005 will be paid in 2009 and has been recorded in deferred
acquisition consideration. In addition, an additional contingent performance
payment may be paid based on Accent’s financial results in 2009. The allocation
of the excess purchase consideration of these step acquisitions to the fair
value of the net assets acquired resulted in identifiable intangibles of $1,900
(consisting of customer lists), goodwill of $365 and a stock based compensation
charge of $2,285, relating to the amount paid in excess of the fair
value of the equity purchase. The identified intangibles will be amortized over
a seven year period in a manner represented by the pattern in which the economic
benefits of the customer contracts/relationships are realized. The intangibles,
goodwill and stock based compensation charge are tax deductible.
Effective
December 1, 2008, the Company acquired an additional 3% of equity interests in
Source Marketing LLC, increasing the Company’s ownership to 83%. The purchase
price totaled $1,286 and was paid in cash less $42 of outstanding loans. The
allocation of the excess purchase consideration of this step acquisition to the
fair value of the net assets acquired resulted in identifiable intangibles of
$300 (consisting of customer lists), goodwill of $504 and a stock based
compensation charge of $524, relating to the amount paid in excess of
the fair value of the equity purchase. The identified intangibles will be
amortized over a five year period in a manner represented by the pattern in
which the economic benefits of the customer contracts/relationships are
realized. The intangibles, goodwill and stock based compensation charge are tax
deductible.
On
November 24, 2008, the Company agreed to make an early payment to KBP Management
Partners LLC of the contingent payment originally due in 2009 pursuant to the
purchase agreement entered into in November 2007. The additional payment totaled
$16,005, of which $14,124 was paid in cash in November 2008 and $1,881 was paid
in 2009. This additional payment was accounted for as additional
goodwill. In addition, pursuant to an existing phantom stock arrangement a stock
based compensation charge of $3,548 has been recorded for amounts paid to the
phantom equity holders. The goodwill is tax deductible.
Effective
November 10, 2008, the Company acquired an additional 17% of equity
interests in Crispin Porter & Bogusky LLC (“CPB”), increasing the Company’s
ownership to 94%. The purchase price totaled $6,823 plus a contingent
payment in April of 2010 based on the financial performance of 2009. This
contingent payment will be calculated in accordance with CPB’s existing limited
liability company agreement. The consideration was paid in cash of $6,430 and
the issuance of 105,000 newly-issued shares of the Company’s Class A
subordinated voting stock valued at $393. For accounting purposes, the value of
the Company’s Class A shares issued as consideration was calculated based on the
price of the Company’s Class A shares over a period of two days before and after
the November 10, 2008 announcement date. This acquisition represented an
accelerated exercise of the Company’s existing call option that was otherwise
exercisable in April 2010. The allocation of the excess purchase consideration
of this acquisition to the fair value of the net assets acquired resulted in
$5,008 being allocated to identifiable intangibles, existing backlog. This
intangible will be amortized over 14.5 month period. This intangible is tax
deductible.
Effective
October 10, 2008, MDC acquired an additional 8.56% of Zig Inc and an additional
13.17% of an affiliate of Zig Inc for cash of $1,320. These transactions
increased the Company’s equity ownership in Zig Inc to 74.07%. The allocation of
the excess purchase consideration of these step acquisitions to the fair value
of the net assets acquired resulted in identifiable intangibles of $176
(consisting of customer lists and existing backlog) and goodwill of $1,196. The
identified intangibles will be amortized over 30 months in a manner represented
by the pattern in which the economic benefits of the customer
contracts/relationships are realized. The tax deductible portion of these
transactions amounts to $253.
On June
16, 2008, CPB, acquired certain assets and assumed certain liabilities of
Texture Media, Inc. Texture Media is a digital agency specializing in website
development, and is based in Boulder, Colorado with approximately 50 employees.
The purchase price consisted of $2,500 in cash and a non-contingent cash payment
of $1,040 in one year, which is included in deferred acquisition consideration.
The allocation of the excess purchase consideration of this acquisition to the
fair value of the net assets acquired resulted in identifiable intangibles of
$150 (consisting of customer lists and covenants not to compete) and goodwill of
$3,111. The identified intangibles will be amortized up to a two year period in
a manner represented by the pattern in which the economic benefits of the
customer contracts/relationship are realized. The intangibles and goodwill are
tax deductible.
On
February 12, 2008, the Company’s Bratskeir subsidiary purchased the net assets
of Clifford PR for $2,050 in cash and the issuance of 30,444 newly issued shares
of the Company’s Class A stock valued at $249, plus a 10% membership interest in
Clifford/Bratskeir. For accounting purposes, the value of the Company’s Class A
shares issued as consideration was calculated based on the price of the
Company’s Class A shares on the date of the acquisition. The accounting value of
the 10% membership interest in Clifford/Bratskeir was valued at $400. The
allocation of the excess purchase consideration of this acquisition to the fair
value of the net assets acquired resulted in identifiable intangibles of $1,031
(consisting of customer lists, backlog and covenants not to compete) and
goodwill of $1,432. The identified intangibles will be amortized over a period
of up to five years in a manner represented by the pattern in which the economic
benefits of the customer contracts/relationship are realized. Effective December
31, 2008, the Company transferred the ownership of the Clifford PR assets to HL
Group Partners, LLC. As part of this transfer, the Company issued
45,000 Class A Shares valued at $137 which have been recorded as stock based
compensation expense. In connection with that transaction, the
Company purchased the 10% membership interest in Clifford/Bratskeir for $400
less an adjustment for working capital of $88. This net amount will
be paid over a three-year period and is included in deferred acquisition
consideration. The intangibles and goodwill are tax
deductible.
In
January 2008, the Company’s 62% owned subsidiary, Zyman Group, purchased certain
assets of Core Strategy Group and DMG Inc. The aggregate purchase price paid at
closing consisted of $1,000 paid in cash and the issuance of 126,478 newly
issued shares of the Company’s Class A stock valued at $1,110. In addition, the
principals of Core Strategy Group and DMG received 1,000,000 newly-issued
Restricted Class C units of Zyman Group, which will entitle them to a profit
interest of 15% of Zyman Group’s pre-tax income in excess of a specified
threshold amount. For accounting purposes, the value of the Company’s Class A
shares issued as consideration was calculated based on the price of the
Company’s Class A share on the date of the acquisitions. The accounting value of
the Restricted Class C units of Zyman Group was determined based on a
Black-Scholes value of $1,001. The allocation of the excess purchase
consideration of these acquisitions to the fair value of the net assets acquired
resulted in identifiable intangibles of $497 (consisting of customer lists and
covenants not to compete) and goodwill of $2,626. The identified intangibles
will be amortized up to a five year period in a manner represented by the
pattern in which the economic benefits of the customer contracts/relationship
are realized. The intangibles and goodwill are tax deductible.
Throughout
2008, the Company completed 16 equity acquisitions with various shareholders of
Allard Johnson Communications Inc. (“Allard”). The aggregate purchase price for
the 16 transactions was cash equal to $3,442. These transactions increased the
Company’s equity ownership in Allard to 75.06%, an increase of 14.8%. The
allocation of the excess purchase consideration of these step acquisitions to
the fair value of the net assets acquired resulted in identifiable intangibles
of $247 (consisting of customer lists and existing backlog), goodwill of $2,752
and a stock based compensation charge of $467, relating to amounts paid in
excess of the fair value of the equity purchased. The identified intangibles
will be amortized over a five year period in a manner represented by the pattern
in which the economic benefits of the customer contracts/relationship are
realized. The intangible and goodwill are not tax deductible.
Pro
forma Information
The
following unaudited pro forma results of operations of the Company for the three
months ended March 31, 2008 assume that the acquisition of the operating assets
of the significant businesses acquired during 2008 had occurred on January 1,
2008. For the three months ended March 31, 2009, there were no
significant businesses acquired. These unaudited pro forma results are not
necessarily indicative of either the actual results of operations that would
have been achieved had the companies been combined during these periods, or are
they necessarily indicative of future results of operations.
|
|
Three Months Ended
March 31,
2008
|
|
Revenues
|
|
$ |
140,902 |
|
Net
loss attributable to MDC Partners Inc.
|
|
$ |
(3,480 |
) |
Loss
per common share:
|
|
|
|
|
Basic – net
loss attributable to MDC Partners Inc.
|
|
$ |
(0.13 |
) |
Diluted – net
loss attributable to MDC Partners Inc.
|
|
$ |
(0.13 |
) |
5.
Accrued and Other
Liabilities
At
March 31, 2009 and December 31, 2008, accrued and other liabilities
included amounts due to noncontrolling interest holders, for their share of
profits, which will be distributed within the next twelve months of $2,329 and
$4,856, respectively.
6.
Discontinued
Operations
In
December 2008, the Company entered into negotiations to sell certain remaining
assets in Bratskeir to management. This transaction was completed in
April 2009. As a result of this transaction, the Company has
classified this entity’s results as discontinued
operations. Bratskeir’s results of operations, net of income tax
benefits, for the three months ended March 31, 2009 and 2008 were losses of $252
and $704, respectively. This entity had been previously included in
the Company’s Specialized Communication Service segment.
Effective
December 3, 2008, Colle & McVoy, LLC (“Colle’), completed the sale of
certain assets of its Mobium division. Mobium’s results of
operations, net of income tax benefits for the three months ended March 31, 2009
and 2008 were a loss of nil and $317, respectively. This entity had
been previously included in the Company’s Strategic Marketing Service
segment.
Effective
June 30, 2008, the Company sold its 60% interest in The Ito Partnership (“Ito”),
a start-up operation formed in 2006. Ito’s results of operations, net
of income tax benefits for the three months ended March 31, 2009 and 2008 were a
loss of nil and $14, respectively. This entity had been previously
included in the Company’s Specialized Communication service
segment.
In 2007,
the Company ceased all operations relating to Margeotes Fertitta Powell, LLC
(“MFP”) and accordingly have classified these operations as
discontinued. The results of operations of MFP for the three months
ended March 31, 2008 was a loss, net of income tax benefits of $2,001 and
consists primarily of the accrual of lease abandonment costs and severance
costs. For the three months ended March 31, 2009, MFP had no results
of operations.
Included
in discontinued operations in the Company’s consolidated statements of
operations for the three months ended March 31, were the
following:
|
|
Three Months Ended
March
31,
|
|
|
|
2009
|
|
|
2008
|
|
Revenue
|
|
$ |
481 |
|
|
$ |
2,599 |
|
Operating
loss
|
|
$ |
383 |
|
|
$ |
4,239 |
|
Other
expense
|
|
$ |
— |
|
|
$ |
(395 |
) |
Net
loss from discontinued operations attributable to MDC Partners Inc., net
of taxes
|
|
$ |
252 |
|
|
$ |
3,036 |
|
7.
Comprehensive
Loss
Total
comprehensive loss and its components were:
|
|
Three Months Ended
March
31,
|
|
|
|
2009
|
|
|
2008
|
|
Net
income (loss) for the period
|
|
$ |
411 |
|
|
$ |
(1,269 |
) |
Other
comprehensive income, net of tax: |
|
|
|
|
|
|
|
|
Foreign
currency cumulative translation adjustment
|
|
|
(1,834 |
) |
|
|
(3,389
|
) |
Comprehensive
loss
|
|
|
(1,423 |
) |
|
|
(4,658
|
) |
Comprehensive
income attributable to the noncontrolling interest
|
|
|
(376 |
) |
|
|
(2,117
|
) |
Comprehensive
loss attributable to MDC Partners Inc.
|
|
$ |
(1,799 |
) |
|
$ |
(6,775 |
) |
8.
Short-Term Debt, Long-Term Debt
and Convertible Debentures
Debt
consists of:
|
|
March
31,
2009
|
|
|
December 31,
2008
|
|
|
|
|
|
|
|
|
Revolving
credit facility
|
|
$ |
19,567 |
|
|
$ |
9,701 |
|
8%
convertible debentures
|
|
|
35,677 |
|
|
|
36,946 |
|
Term
loans
|
|
|
130,000 |
|
|
|
130,000 |
|
Notes
payable and other bank loans
|
|
|
2,401 |
|
|
|
2,789 |
|
|
|
|
187,645 |
|
|
|
179,436 |
|
Obligations
under capital leases
|
|
|
1,990 |
|
|
|
2,062 |
|
|
|
|
189,635 |
|
|
|
181,498 |
|
Less:
|
|
|
|
|
|
|
|
|
Current
portions
|
|
|
1,519 |
|
|
|
1,546 |
|
Long
term portion
|
|
$ |
188,116 |
|
|
$ |
179,952 |
|
MDC
Financing Agreement and Debentures
Financing
Agreement
On June
18, 2007, MDC Partners Inc. (the “Company”) and its material subsidiaries
entered into a $185,000 senior secured financing agreement (the “Financing
Agreement”) with Fortress Credit, an affiliate of Fortress Investment Group, as
collateral agent and Wells Fargo Bank, as administrative agent, and a syndicate
of lenders. Proceeds from the Financing Agreement were used to repay in full the
outstanding balances on the Company's prior credit facility, which was
terminated.
The
Financing Agreement consists of a $55,000 revolving credit facility, a $60,000
term loan and a $70,000 delayed draw term loan. Borrowings under the Financing
Agreement will bear interest as follows: (a) LIBOR Rate Loans bear interest at
applicable interbank rates and Reference Rate Loans bear interest at the rate of
interest publicly announced by the Reference Bank in New York, New York, plus
(b) a percentage spread ranging from 0% to a maximum of 4.75% depending on the
type of loan and the Company’s Senior Leverage Ratio. In addition, the Company
is required to pay a facility fee of 50 basis points. At March 31, 2009, the
weighted average interest rate was 6.87%.
At March
31, 2009, $30,810 remains available under the Financing Agreement to support the
Company’s future cash requirements. The Company’s obligations under the
Financing Agreement are guaranteed by the material subsidiaries of the Company.
The Financing Agreement matures on June 17, 2012, and is subject to various
covenants, including a senior leverage ratio, fixed charges ratio, limitations
on debt incurrence, limitation on liens and limitation on dividends and other
payments.
The
Company is currently in compliance with all of the terms and conditions of its
Financing Agreement, and management believes, based on its current financial
projections, that the Company will be in compliance with all covenants under the
Financing Agreement over the next twelve months.
8%
Convertible Unsecured Subordinated Debentures
On June
28, 2005, the Company completed an offering in Canada of convertible unsecured
subordinated debentures amounting to $36,723 (C$45,000) (the “Debentures”). The
Debentures will mature on June 30, 2010. The Debentures bear interest at an
annual rate of 8.00% payable semi-annually, in arrears, on June 30 and December
31 of each year, commencing December 31, 2005. Unless an event of default has
occurred and is continuing, the Company may elect, from time to time, subject to
applicable regulatory approval, to issue and deliver Class A subordinate voting
shares to the Debenture trustee in order to raise funds to satisfy all or any
part of the Company’s obligations to pay interest on the Debentures in
accordance with the indenture in which holders of the Debentures will be
entitled to receive a cash payment equal to the interest payable from the
proceeds of the sale of such Class A subordinate voting shares by the Debenture
trustee.
The
Debentures are convertible at the holder’s option into fully-paid,
non-assessable and freely tradable Class A subordinate voting shares of the
Company, at any time prior to maturity or redemption, subject to the
restrictions on transfer, at a conversion price of $11.10 (C$14.00) per Class A
subordinate voting share being a ratio of approximately 71.4286 Class A
subordinate voting shares per $792.83 (C$1,000.00) principal amount of
Debentures.
Prior to
June 30, 2009, the Debentures may be redeemed, in whole or in part from time to
time, at a price equal to the principal amount of the Debenture plus accrued and
unpaid interest, provided that the volume weighted average trading price of the
Class A subordinate voting shares on the Toronto Stock Exchange during a
specified period is not less than 125% of the conversion price. From
July 1, 2009 until the maturity of the Debentures, the Debentures may be
redeemed by the Company at a price equal to the principal amount of the
Debenture plus accrued and unpaid interest, if any. The Company may elect to
satisfy the redemption consideration, in whole or in part, by issuing Class A
subordinate voting shares of the Company to the holders, the number of which
will be determined by dividing the principal amount of the Debenture by 95% of
the current market price of the Class A subordinate voting shares on the
redemption date. Upon the occurrence of a change of control on or after June 30,
2008, the Company shall be required to make an offer to purchase all of the then
outstanding Debentures at a price equal to 100% of the principal amount of the
Debentures plus accrued and unpaid interest to the purchase date.
During
the three months ended March 31, 2009, Class A share capital increased by
$4,330, as the Company issued 544,320 Class A shares related to vested
restricted stock. During the three months ended March 31, 2009,
“Additional paid-in capital” decreased by $4,330 related to the vested
restricted stock, by $36,960 relating to the recording of existing put options
in accordance with the adoption of FAS 160 and EITF Topic D-98 (Note 13), and
$213 related to acquisitions offset by $1,686 related to an increase from
stock-based compensation that was expensed during the same period and a
reclassification of the $6,347 to charges in excess of capital.
In March
2009, the Company purchased and retired 106,904 Class A shares for $320 from
employees in connection with the required tax withholding resulting from the
vesting of shares of restricted stock.
Total
equity decreased $37,579, which is comprised of the put options of $36,960, a
reduction in total accumulated other comprehensive income of $1,834, treasury
stock purchases of $320, and acquisition related adjustments of $213, offset in
part by an increase in stock-based compensation of $1,686, net income
attributable to MDC Partners of $29 and other transactions of $33.
10.
|
Other Income
(Expense)
|
|
|
Three Months Ended
March
31,
|
|
|
|
2009
|
|
|
2008
|
|
Other
income
|
|
$ |
33 |
|
|
$ |
36 |
|
Foreign
currency transaction gain
|
|
|
2,607 |
|
|
|
3,639 |
|
Loss
on sale of assets
|
|
|
(11 |
) |
|
|
(48
|
) |
|
|
$ |
2,629 |
|
|
$ |
3,627 |
|
11.
|
Segmented
Information
|
The
Company reports in three segments plus corporate. The segments are as
follows:
|
|
·
|
The Strategic
Marketing Services (“SMS”) segment consists of integrated
marketing consulting services firms that offer a complement of marketing
consulting services including advertising and media, marketing
communications including direct marketing, public relations, corporate
communications, market research, corporate identity and branding,
interactive marketing and sales promotion. Each of the entities within SMS
share similar economic characteristics, specifically related to the nature
of their respective services, the manner in which the services are
provided and the similarity of their respective customers. Due to the
similarities in these businesses, they exhibit similar long term financial
performance and have been aggregated
together.
|
|
|
·
|
The Customer
Relationship Management (“CRM”) segment provides marketing
services that interface directly with the consumer of a client’s product
or service. These services include the design, development and
implementation of a complete customer service and direct marketing
initiative intended to acquire, retain and develop a client’s customer
base.
|
|
|
·
|
The Specialized
Communication Services (“SCS”) segment includes all of the
Company’s other marketing services firms that are normally engaged to
provide a single or a few specific marketing services to regional,
national and global clients. These firms provide niche solutions by
providing world class expertise in select marketing
services.
|
The
significant accounting policies of these segments are the same as those
described in the summary of significant accounting policies included in the
notes to the consolidated financial statements.
The SCS
segment is an “Other” segment pursuant SFAS 131 “Disclosures about Segments of
an Enterprise and Related Information”.
Summary
financial information concerning the Company’s operating segments is shown in
the following tables:
Three
Months Ended March 31, 2009
(thousands
of United States dollars)
|
|
Strategic
Marketing
Services
|
|
|
Customer
Relationship
Management
|
|
|
Specialized
Communication
Services
|
|
|
Corporate
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
78,870 |
|
|
$ |
29,132 |
|
|
$ |
18,736 |
|
|
$ |
— |
|
|
$ |
126,738 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of services sold
|
|
|
49,019 |
|
|
|
21,970 |
|
|
|
14,890 |
|
|
|
— |
|
|
|
85,879 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
and general expenses
|
|
|
18,280 |
|
|
|
5,485 |
|
|
|
3,475 |
|
|
|
3,912 |
|
|
|
31,152 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
5,240 |
|
|
|
1,839 |
|
|
|
420 |
|
|
|
94 |
|
|
|
7,593 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Profit/(Loss)
|
|
|
6,331 |
|
|
|
(162 |
) |
|
|
(49 |
) |
|
|
(4,006 |
) |
|
|
2,114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,629 |
|
Interest
expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,558 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from
continuing operations before income taxes, equity in
affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,185 |
|
Income
tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
615 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations before equity in affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
570 |
|
Equity
in earnings of non-consolidated affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
93 |
|
Income
from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
663 |
|
Loss
from discontinued operations attributable to
MDC Partners Inc., net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(252 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
411 |
|
Net
income attributable to the noncontrolling
interests
|
|
|
(365 |
) |
|
|
— |
|
|
|
(17 |
) |
|
|
— |
|
|
|
(382 |
) |
Net
income attributable to MDC Partners Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non
cash stock based compensation
|
|
$ |
433 |
|
|
$ |
29 |
|
|
$ |
161 |
|
|
$ |
1,274 |
|
|
$ |
1,897 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Segment Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
$ |
680 |
|
|
$ |
— |
|
|
$ |
131 |
|
|
$ |
19 |
|
|
$ |
830 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
and intangibles
|
|
$ |
216,409 |
|
|
$ |
30,813 |
|
|
$ |
33,305 |
|
|
$ |
— |
|
|
$ |
280,527 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
356,614 |
|
|
$ |
62,010 |
|
|
$ |
79,015 |
|
|
$ |
38,446 |
|
|
$ |
536,085 |
|
Three
Months Ended March 31, 2008
(thousands
of United States dollars)
Restated
for Discontinued Operations
|
|
Strategic
Marketing
Services
|
|
|
Customer
Relationship
Management
|
|
|
Specialized
Communication
Services
|
|
|
Corporate
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
76,978 |
|
|
$ |
34,663 |
|
|
$ |
29,261 |
|
|
$ |
— |
|
|
$ |
140,902 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of services sold
|
|
|
49,521 |
|
|
|
25,690 |
|
|
|
20,308 |
|
|
|
— |
|
|
|
95,519 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
and general expense
|
|
|
18,924 |
|
|
|
5,921 |
|
|
|
5,227 |
|
|
|
4,383 |
|
|
|
34,455 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
7,281 |
|
|
|
1,825 |
|
|
|
602 |
|
|
|
68 |
|
|
|
9,776 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Profit/(Loss)
|
|
|
1,252 |
|
|
|
1,227 |
|
|
|
3,124 |
|
|
|
(4,451
|
) |
|
|
1,152 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,627 |
|
Interest
expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,444
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations before income taxes, equity in
affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,335 |
|
Income
tax recovery
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
292 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations before equity in affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,627 |
|
Equity
in income of non-consolidated affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
140 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,767 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from discontinued operations attributable to
MDC Partners Inc., net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,036
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,269
|
) |
Net
income attributable to the
noncontrolling interests
|
|
|
(687 |
) |
|
|
(57 |
) |
|
|
(1,381 |
) |
|
|
— |
|
|
|
(2,125
|
) |
Net
Loss attributable to MDC Partners Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(3,394 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non
cash stock based compensation
|
|
$ |
446 |
|
|
$ |
32 |
|
|
$ |
252 |
|
|
$ |
1,268 |
|
|
$ |
1,998 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Segment Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
$ |
2,678 |
|
|
$ |
878 |
|
|
$ |
593 |
|
|
$ |
28 |
|
|
$ |
4,177 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
and intangibles
|
|
$ |
200,314 |
|
|
$ |
29,128 |
|
|
$ |
45,808 |
|
|
$ |
— |
|
|
$ |
275,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
348,925 |
|
|
$ |
75,407 |
|
|
$ |
101,717 |
|
|
$ |
13,641 |
|
|
$ |
539,690 |
|
A summary
of the Company’s revenue by geographic area, based on the location in which the
services originated, is set forth in the following table:
|
United
States
|
|
Canada
|
|
Other
|
|
Total
|
|
Revenue
|
|
|
|
|
|
|
|
|
Three
Months Ended March 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
$ |
108,042 |
|
|
$ |
17,565 |
|
|
$ |
1,131 |
|
|
$ |
126,738 |
|
2008
|
|
$ |
115,267 |
|
|
$ |
22,150 |
|
|
$ |
3,485 |
|
|
$ |
140,902 |
|
12.
Commitments, Contingencies and Guarantees
Deferred Acquisition
Consideration. In addition to the consideration paid by the Company with
respect of certain of its acquisitions made prior to January 1, 2009, additional
consideration may be payable, or may be potentially payable based on the
achievement of certain threshold levels of earnings. Should the current level of
earnings be maintained by these acquired companies, no additional consideration,
in excess of the deferred acquisition consideration reflected on the Company’s
balance sheet at March 31, 2009 would be expected to be owed in
2009.
Put Options. Owners of
interests in certain subsidiaries have the right in certain circumstances to
require the Company to acquire the remaining ownership interests held by them.
The owners’ ability to exercise any such “put option” right is subject to the
satisfaction of certain conditions, including conditions requiring notice in
advance of exercise. In addition, these rights cannot be exercised prior to
specified staggered exercise dates. The exercise of these rights at their
earliest contractual date would result in obligations of the Company to fund the
related amounts during the period 2009 to 2018. It is not determinable, at this
time, if or when the owners of these rights will exercise all or a portion of
these rights.
The
amount payable by the Company in the event such rights are exercised is
dependent on various valuation formulas and on future events, such as the
average earnings of the relevant subsidiary through the date of exercise, the
growth rate of the earnings of the relevant subsidiary during that period, and,
in some cases, the currency exchange rate at the date of payment.
Management
estimates, assuming that the subsidiaries owned by the Company at March 31,
2009, perform over the relevant future periods at their trailing
twelve-months earnings levels, that these rights, if all exercised, could
require the Company, in future periods, to pay an aggregate amount of
approximately $31,382 to the owners of such rights to acquire such ownership
interests in the relevant subsidiaries. Of this amount, the Company is entitled,
at its option, to fund approximately $3,887 by the issuance of share capital. In
addition, the Company is obligated under similar put option rights to pay an
aggregate amount of approximately $3,974 only upon termination of such owner’s
employment with the applicable subsidiary. The ultimate amount payable relating
to these transactions will vary because it is dependent on the future results of
operations of the subject businesses and the timing of when these rights are
exercised. Pursuant to the adoption of FAS 160 and EITF Topic D-98
(Note 13), the aggregate amount of these options $35,356 has been recorded on
the balance at March 31, 2009 and is included in Redeemable Noncontrolling
Interests.
Natural Disasters. Certain of
the Company’s operations are located in regions of the United States and
Caribbean which typically are subject to hurricanes. During the three months
ended March 31, 2009 and 2008, these operations did not incur any costs related
to damages resulting from hurricanes.
Guarantees. In connection
with certain dispositions of assets and/or businesses in 2001 and 2003, the
Company has provided customary representations and warranties whose terms range
in duration and may not be explicitly defined. The Company has also retained
certain liabilities for events occurring prior to sale, relating to tax,
environmental, litigation and other matters. Generally, the Company has
indemnified the purchasers in the event that a third party asserts a claim
against the purchaser that relates to a liability retained by the Company. These
types of indemnification guarantees typically extend for a number of
years.
In
connection with the sale of the Company’s investment in CDI, the amounts of
indemnification guarantees were limited to the total sale price of approximately
$84,000. For the remainder, the Company’s potential liability for these
indemnifications are not subject to a limit as the underlying agreements do not
always specify a maximum amount and the amounts are dependent upon the outcome
of future contingent events.
Historically,
the Company has not made any significant indemnification payments under such
agreements and no amount has been accrued in the accompanying consolidated
financial statements with respect to these indemnification guarantees. The
Company continues to monitor the conditions that are subject to guarantees and
indemnifications to identify whether it is probable that a loss has occurred,
and would recognize any such losses under any guarantees or indemnifications in
the period when those losses are probable and estimable.
For
guarantees and indemnifications entered into after January 1, 2003, in
connection with the sale of the Company’s investment in CDI, the Company has
estimated the fair value of its liability, which was insignificant.
Legal Proceedings. The
Company’s operating entities are involved in legal proceedings of various types.
While any litigation contains an element of uncertainty, the Company has no
reason to believe that the outcome of such proceedings or claims will have a
material adverse effect on the financial condition or results of operations of
the Company.
Commitments. The
Company has commitments to fund $138 in one investment fund over a period of up
to two years. At March 31, 2009, the Company has issued $4,623 of undrawn
outstanding letters of credit.
13. New Accounting
Pronouncements
In
December 2007, FASB issued SFAS No. 141R “Business Combination” (“SFAS 141R”).
This revised statement retains some fundamental concepts of the current
standard, including the acquisition method of accounting (known as the “purchase
method” in Statement 141) for all business combinations but SFAS 141R broadens
the definitions of both businesses and business combinations, resulting in the
acquisition method applying to more events and transactions. This statement also
requires the acquirer to recognize the identifiable assets and liabilities, as
well as the noncontrolling interest in the acquiree, at the full amounts of
their fair values. SFAS 141R will require both acquisition-related costs and
restructuring costs to be recognized separately from the acquisition and be
expensed as incurred. In addition, acquirers will record contingent
consideration at fair value on the acquisition date as either a liability or
equity. Subsequent changes in fair value will be recognized in the income
statement for any contingent consideration recorded as a liability. SFAS 141R is
to be applied prospectively for financial statements issued for fiscal years
beginning on or after December 15, 2008. Early application was prohibited. The
adoption of this statement did not have a material effect on our financial
statements.
In
December 2007, FASB issued SFAS No. 160 “Non-controlling Interests in
Consolidated Financial Statements” (SFAS 160”). This statement amends ARB No. 51
Consolidated Financial Statements, to now require the classification of
noncontrolling (minority) interests and dispositions of noncontrolling interests
as equity within the consolidated financial statements. The income statement
will now be required to show net income/loss with and without adjustments for
noncontrolling interests. SFAS 160 is to be applied prospectively for financial
statements issued for fiscal years beginning on or after December 15, 2008 and
interim periods within those years. However, this statement requires companies
to apply the presentation and disclosure requirements retrospectively to
comparative financial statements. Early application was
prohibited. EITF Topic D-98 was expanded in 2008 to require the
recording of put options as a liability and a reduction of
equity. The adoption of these new statements has resulted in the
Company recording the estimated redemption amount of its outstanding put options
as a reduction of Additional Paid in Capital and an increase in Redeemable
Noncontrolling Interests of $37,849. As of December 31, 2008, the
Company has reclassified $21,751 of minority interest to Redeemable
Noncontrolling Interest, representing Noncontrolling Interests which could be
purchased by the Company pursuant to the exercise of an existing Put
option. In addition, as of December 31, 2008, a portion of minority
interest, which is not subject to put options, has been reclassified as part of
Equity-Noncontrolling Interest. Changes in the estimated redemption
amounts of the noncontrolling interests subject to put options are adjusted at
each reporting period with a corresponding adjustment to Equity. For
the three months ended March 31, 2008, the Company reclassified net income
attributable to the noncontrolling interests below net income (loss), as a
result, the net loss was reduced by $2,125. These adjustments will
not impact the calculation of earnings per share. At March 31, 2009,
the Company reduced its estimated redemption amounts by $889.
In
March 2008, the FASB issued SFAS No. 161, “Disclosures about
Derivative Instruments and Hedging Activities, an amendment of FASB Statement
No. 133” (“SFAS 161”), which requires enhanced disclosures for derivative
and hedging activities. SFAS 161 will become effective beginning with our first
quarter of 2009. Early adoption is permitted. The adoption of this
statement did not have a material effect on our financial
statements.
In
November 2008, the EITF issued Issue No. 08-6, Equity Method Investment Accounting
Considerations (“EITF 08-6”), which is effective for the Company January
1, 2009. EITF 08-6 addresses the impact that SFAS 141R and SFAS 160 might have
on the accounting for equity method investments, including how the initial
carrying value of an equity method investment should be determined, how an
impairment assessment of an underlying indefinite lived intangible asset of an
equity method investment should be performed and how to account for a change in
an investment from the equity method to the cost method. The adoption of this
guidance did not have an impact on our financial statements.
In April
2008, the FASB issued Staff Position No. FAS 142-3, "Determination of the Useful
Life of Intangible Assets" ("FSP FAS 142-3"). FSP FAS 142-3 amends the factors
that should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under Statement No.
142, "Goodwill and Other Intangible Assets" ("Statement 142"). The intent of
this FSP is to improve the consistency between the useful life of a recognized
intangible asset, as determined under the provisions of Statement 142, and the
period of expected cash flows used to measure the fair value of the asset in
accordance with Statement 141(R). FSP FAS 142-3 was effective for fiscal years
beginning after December 15, 2008 and is to be applied prospectively to
intangible assets acquired subsequent to its effective date. Accordingly, we
adopted the provisions of this FSP on January 1, 2009. The impact that the
adoption of FSP FAS 142-3 may have on our financial position and results of
operations will depend on the nature and extent of any intangible assets
acquired subsequent to its effective date.
In May
2008, the FASB issued Staff Position No. APB 14-1, “Accounting for Convertible
Debt Instruments That May Be Settled In Cash Upon Conversion (Including Partial
Cash Settlement)”, (“FSP APB 14-1”). FSP APB 14-1 addresses the
accounting for convertible debt instruments that, by their stated terms, may be
settled in cash upon conversion including partial cash
settlement. This guidance is effective for fiscal years beginning
after December 15, 2008 and interim periods within those years. The
adoption of this guidance did not have a material effect on our financial
statements.
Item 2. Management’s
Discussion and Analysis of Financial Condition and Results of Operations
Unless
otherwise indicated, references to the “Company” mean MDC Partners Inc. and its
subsidiaries, and references to a fiscal year means the Company’s year
commencing on January 1 of that year and ending December 31 of that
year (e.g., fiscal 2009 means the period beginning January 1, 2009, and
ending December 31, 2009).
The
Company reports its financial results in accordance with generally accepted
accounting principles (“GAAP”) of the United States of America (“US GAAP”).
However, the Company has included certain non-US GAAP financial measures and
ratios, which it believes, provide useful information to both management and
readers of this report in measuring the financial performance and financial
condition of the Company. One such term is “organic revenue” which means growth
in revenues from sources other than acquisitions or foreign exchange impacts.
These measures do not have a standardized meaning prescribed by US GAAP and,
therefore, may not be comparable to similarly titled measures presented by other
publicly traded companies, nor should they be construed as an alternative to
other titled measures determined in accordance with US GAAP.
The
following discussion focuses on the operating performance of the Company for the
three months ended March 31, 2009 and 2008, and the financial condition of the
Company as of March 31, 2009. This analysis should be read in conjunction with
the interim condensed consolidated financial statements presented in this
interim report and the annual audited consolidated financial statements and
Management’s Discussion and Analysis presented in the Annual Report to
Shareholders for the year ended December 31, 2008 as reported on
Form 10-K. All amounts are in U.S. dollars unless otherwise
stated.
Executive Summary
The
Company’s objective is to create shareholder value by building market-leading
subsidiaries and affiliates that deliver innovative, value-added marketing
communications and strategic consulting services to their clients. Management
believes that shareholder value is maximized with an operating philosophy of
“Perpetual Partnership” with proven committed industry leaders in marketing
communications.
We manage
the business by monitoring several financial and non-financial performance
indicators. The key indicators that we review focus on the areas of revenues and
operating expenses and capital expenditures. Revenue growth is analyzed by
reviewing the components and mix of the growth, including: growth by major
geographic location; existing growth by major reportable segment (organic);
growth from currency changes; and growth from acquisitions.
We
conduct our businesses through the Marketing Communications Group. Within the
Marketing Communications Group, there are three reportable operating segments:
Strategic Marketing Services (“SMS”), Customer Relationship Management (“CRM”)
and Specialized Communication Services (“SCS”). In addition, MDC has a
“Corporate Group” which provides certain administrative, accounting, financial
and legal functions. Through our operating “partners”, MDC provides advertising,
consulting, customer relationship management, and specialized communication
services to clients throughout the United States, Canada, Europe, Jamaica and
the Philippines.
The
operating companies earn revenue from agency arrangements in the form of
retainer fees or commissions; from short-term project arrangements in the form
of fixed fees or per diem fees for services; and from incentives or bonuses.
Additional information about revenue recognition appears in Note 2 of the Notes
to the Condensed Consolidated Financial Statements.
We
measure operating expenses in two distinct cost categories: cost of services
sold, and office and general expenses. Cost of services sold is primarily
comprised of employee compensation related costs and direct costs related
primarily to providing services. Office and general expenses are primarily
comprised of rent and occupancy costs and administrative service costs including
related employee compensation costs. Also included in operating expenses is
depreciation and amortization.
Because
we are a service business, we monitor these costs on a percentage of revenue
basis. The cost of services sold tends to fluctuate in conjunction with changes
in revenues, whereas office and general expenses and depreciation and
amortization, which are not directly related to servicing clients, tend to
decrease as a percentage of revenue as revenues increase because a significant
portion of these expenses are relatively fixed in nature.
We
measure capital expenses as either maintenance or investment related.
Maintenance capital expenses are primarily composed of general upkeep of our
office facilities and equipment that are required to continue to operate our
businesses. Investment capital expenses include expansion costs, the
build out of new capabilities, technology or call centers, or other growth
initiatives not related to the day to day upkeep of the existing
operations. Growth capital expenses are measured and approved based on the
expected return of the invested capital.
Certain
Factors Affecting Our Business
Acquisitions and
Dispositions. Our strategy includes acquiring ownership stakes
in well-managed businesses with strong reputations in the industry. We engaged
in a number of acquisition and disposal transactions during the 2008 to 2009
period, which affected revenues, expenses, operating income and net income.
Additional information regarding material acquisitions is provided in Note 4
“Acquisitions” and information on dispositions is provided in Note 6
“Discontinued Operations” in the notes to the Condensed Consolidated Financial
Statements.
Foreign Exchange
Fluctuations. Our financial results and competitive position
are affected by fluctuations in the exchange rate between the US dollar and
non-US dollars, primarily the Canadian dollar. See also “Quantitative and
Qualitative Disclosures About Market Risk — Foreign
Exchange.”
Seasonality. Historically,
with some exceptions, we generate the highest quarterly revenues during the
fourth quarter in each year. The fourth quarter has historically been the period
in the year in which the highest volumes of media placements and retail related
consumer marketing occur.
Results
of Operations:
For
the Three Months Ended March 31, 2009
(thousands
of United States dollars)
|
|
Strategic
Marketing
Services
|
|
|
Customer
Relationship
Management
|
|
|
Specialized
Communication
Services
|
|
|
Corporate
|
|
|
Total
|
|
Revenue
|
|
$ |
78,870 |
|
|
$ |
29,132 |
|
|
$ |
18,736 |
|
|
$ |
— |
|
|
$ |
126,738 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of services sold
|
|
|
49,019 |
|
|
|
21,970 |
|
|
|
14,890 |
|
|
|
— |
|
|
|
85,879 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
and general expenses
|
|
|
18,280 |
|
|
|
5,485 |
|
|
|
3,475 |
|
|
|
3,912 |
|
|
|
31,152 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
5,240 |
|
|
|
1,839 |
|
|
|
420 |
|
|
|
94 |
|
|
|
7,593 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Profit/(Loss)
|
|
|
6,331 |
|
|
(162)_
|
|
|
|
(49 |
) |
|
|
(4,006 |
) |
|
|
2,114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,629 |
|
Interest
expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,558 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations before income taxes, equity in
affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,185 |
|
Income
tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
615 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations before equity in affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
570 |
|
Equity
in earnings of non-consolidated affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
93 |
|
Income
from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
663 |
|
Loss
from discontinued operations attributable to MDC Partners Inc., net of
taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(252 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
411 |
|
Net
income attributable to the
noncontrolling interests
|
|
|
(365 |
) |
|
|
— |
|
|
|
(17 |
) |
|
|
— |
|
|
|
(382 |
) |
Net
income attributable to MDC Partners Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non
cash stock based compensation.
|
|
$ |
433 |
|
|
$ |
29 |
|
|
$ |
161 |
|
|
$ |
1,274 |
|
|
$ |
1,897 |
|
Results
of Operations:
For
the Three Months Ended March 31, 2008
(thousands
of United States dollars)
Restated
for Discontinued Operations
|
|
Strategic
Marketing
Services
|
|
|
Customer
Relationship
Management
|
|
|
Specialized
Communication
Services
|
|
|
Corporate
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
76,978 |
|
|
$ |
34,663 |
|
|
$ |
29,261 |
|
|
$ |
— |
|
|
$ |
140,902 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of services sold
|
|
|
49,521 |
|
|
|
25,690 |
|
|
|
20,308 |
|
|
|
— |
|
|
|
95,519 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
and general expenses
|
|
|
18,924 |
|
|
|
5,921 |
|
|
|
5,227 |
|
|
|
4,383 |
|
|
|
34,455 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
7,281 |
|
|
|
1,825 |
|
|
|
602 |
|
|
|
68 |
|
|
|
9,776 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Profit/(Loss)
|
|
|
1,252 |
|
|
|
1,227 |
|
|
|
3,124 |
|
|
|
(4,451
|
) |
|
|
1,152 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,627 |
|
Interest
expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,444
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations before income taxes, equity in
affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,335 |
|
Income
tax recovery
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
292 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations before equity in affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,627 |
|
Equity
loss of non-consolidated affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
140 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,767 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from discontinued operations attributable to
MDC Partners Inc., net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,036
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,269
|
) |
Net
income attributable to the noncontrolling
interests
|
|
|
(687 |
) |
|
|
(57 |
) |
|
|
(1,381 |
) |
|
|
— |
|
|
|
(2,125
|
) |
Net
loss attributable to MDC Partners Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(3,394 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non
cash stock based compensation
|
|
$ |
446 |
|
|
$ |
32 |
|
|
$ |
252 |
|
|
$ |
1,268 |
|
|
$ |
1,998 |
|
Three
Months Ended March 31, 2009, Compared to Three Months Ended March 31,
2008
Revenue
was $126.7 million for the quarter ended March 31, 2009, representing a decrease
of $14.2 million, or 10%, compared to revenue of $140.9 million for the quarter
ended March 31, 2008. This revenue decrease relates primarily to a decrease in
organic revenues of $9.5 million. In addition, a strengthening of the US Dollar,
primarily versus the Canadian dollar during the quarter ended March 31, 2009,
resulted in decreased revenues of $4.7 million.
Operating
profit for 2009 was $2.1 million, compared to $1.2 million for 2008. The
increase in operating profit was primarily the result of an increase in
operating profit of $5.1 million in the Strategic Marketing Services (“SMS”)
segment, partially offset by decreases in operating profits of $1.4 million and
$3.2 million within the Customer Relationship Management (“CRM”) and Specialized
Communication Services (“SCS”) segments, respectively. In addition, Corporate
operating expenses decreased by $0.4 million.
The
income from continuing operations attributable to MDC Partners Inc. for the
first quarter of 2009 was $0.3 million, compared to a loss of $0.4 million in
2008. This increase in income of $0.7 million was primarily the result of an
increase in operating profits of $1.0 million and a decrease in net income
attributable to noncontrolling interests of $1.7 million. These
amounts were offset by an increase in income tax expense of $0.9 million and a
decrease in unrealized gains on foreign currency transactions of $1.0
million.
Marketing
Communications Group
Revenues
in 2009 attributable to the Marketing Communications Group, which consists of
three reportable segments — Strategic Marketing Services (“SMS”),
Customer Relationship Management (“CRM”), and Specialized Communication Services
(“SCS”), were $126.7 million compared to $140.9 million in 2008, representing a
year-over-year decrease of 10%.
The
components of decrease revenue in 2009 are shown in the following
table:
|
|
Revenue
|
|
|
|
$000’s
|
|
|
%
|
|
Quarter
ended March 31, 2008
|
|
$ |
140,902 |
|
|
|
— |
|
Organic
|
|
|
(9,455 |
) |
|
|
6.7
|
% |
Foreign
exchange impact
|
|
|
(4,709 |
) |
|
|
3.3
|
% |
Quarter
ended March 31, 2009
|
|
$ |
126,738 |
|
|
|
10.0
|
% |
The
geographic mix in revenues was consistent between 2009 and 2008 and is
demonstrated in the following table:
|
|
2009
|
|
|
2008
|
|
US
|
|
|
85
|
% |
|
|
82
|
% |
Canada
|
|
|
14
|
% |
|
|
16
|
% |
UK
and other
|
|
|
1
|
% |
|
|
2
|
% |
The
operating profit of the Marketing Communications Group increased by
approximately 9.2% to $6.1 million from $5.6 million. Operating margins
increased by 0.8% and were 4.8% for 2009 compared to 4.0% for 2008. The increase
in operating profit and operating margin is primarily attributable to a decrease
in depreciation and amortization of $2.2 million primarily related to the SMS
segment. In addition, direct costs (excluding staff costs) decreased as a
percentage of revenues from 27.6% of revenue in 2008 to 25.6% of revenue in 2009
due to a decrease in reimbursed client related direct costs. However, total
staff costs as a percentage of revenues increased from 48.2% in 2008 to 51.1% in
2009. General and administrative costs increased as a percentage of revenue from
21.3% in 2008 to 21.5% in 2009.
Strategic
Marketing Services (“SMS”)
Revenues
attributable to SMS in the first quarter of 2009 were $78.9 million, compared to
$77.0 million in 2008. The year-over-year increase of $1.9 million or 2.5% was
attributable primarily to organic growth of $3.5 million as a result of net new
business wins. A strengthening of the US dollar versus the Canadian dollar in
2009 compared to 2008 resulted in a $1.6 million decrease in revenues from the
division’s Canadian-based operations.
The
operating profit of SMS increased by approximately 406% to $6.3 million in 2009
from $1.3 million in 2008, while operating margins increased to 8.0% in 2009
from 1.6% in 2008. Operating profit increased due primarily to decreased
depreciation and amortization of $2.0 million, which relates to the amortization
of certain intangibles resulting from the CPB and KBP step-up acquisitions
during the fourth quarter of 2007. In addition, direct costs (excluding staff
costs) as a percentage of revenues decreased from 12.1% of revenue in 2008, to
11.0% of revenue in 2009. Total staff costs as a percentage of revenue decreased
from 61.0% in 2008 to 60.4% in 2009, due in part to the managing of staff costs
more closely due to the current economic conditions. General and administrative
costs decreased as a percentage of revenue from 24.6% in 2008 to 23.2% in 2009,
as a result of relatively fixed costs while revenue increased.
Customer
Relationship Management (“CRM”)
Revenues
reported by the CRM segment in 2009 were $29.1 million, a decrease of $5.5
million or 16% compared to the $34.7 million reported for 2008. This decrease
was a result of reduced revenues from existing clients in part as a result of
clients reducing their outsourcing needs and the conversion of a customer care
center to a new program which began in the fourth quarter of 2008.
Operating
profit earned by CRM decreased to a loss of $0.2 million in 2009 from income of
$1.2 million for 2008. Operating margins were (0.6)% for 2009 as compared to
3.5% in 2008. The decrease in margins is primarily due to an increase in cost of
services sold from 74.1% in 2008 to 75.4% in 2009, and an increase in general
and administrative costs as a percentage of revenue from 17.1% in 2008 to 18.8%
in 2009. These increases relate primarily to relatively fixed costs
against a decrease in revenue.
Specialized
Communication Services (“SCS”)
SCS
generated revenues of $18.7 million for 2009, a decrease of $10.5 million, or
36% lower than revenues of $29.3 million in 2008. The year-over-year decrease
was attributable primarily to reduced revenue of $7.4 million as a result of the
reduction and delays of client project spending. A strengthening of the US
dollar versus the Canadian dollar and British pound in 2009 compared to 2008
resulted in a $3.1 million decrease in revenues from the division’s Canadian and
UK-based operations.
The
operating profit of SCS decreased by $3.2 million to a loss of $0.1 million in
2009, from an operating profit of $3.1 million in 2008, with operating margins
of (0.3)% in 2009 compared to 10.7% in 2008. The decrease in operating margin in
2009 was due primarily to an increase in total staff costs as a percentage of
revenue from 47.4% in 2008, to 52.5% in 2009, and an increase in general and
administrative costs as a percentage of revenue from 17.9% in 2008 to 18.5% in
2009. Total staff costs decreased from $13.9 million in 2008 to $9.8
million in 2009. However, revenue decreases outpaced the reduction of
staff costs and general and administrative costs are relatively fixed
costs.
Corporate
Operating
costs related to the Company’s Corporate operations totaled $4.0 million in 2009
compared to $4.5 million in 2008. This
decrease of $0.5 million is primarily due to a reduction in compensation and
related costs.
Other
Income, Net
Other
income decreased to $2.6 million in 2009 compared to $3.6 million in 2008. The
2009 income is primarily comprised of a foreign exchange gain of $2.6 million
for 2009, compared to a gain of $3.6 million recorded in
2008. Specifically, this unrealized gain was due primarily to the
strengthening in the US dollar during 2009 and 2008 compared to the Canadian
dollar primarily on its US dollar denominated intercompany balances with its
Canadian subsidiaries compared to December 31, 2008. At March 31, 2009, the
exchange rate was 1.26 Canadian dollars to one US dollar, compared to 1.22 at
the end of 2008.
Net
Interest Expense
Net
interest expense for 2009 was $3.5 million, an increase of $0.1 million over the
$3.4 million net interest expense incurred during 2008. Interest expense
decreased $0.1 million in 2009 due to higher average outstanding debt in 2009,
offset by lower interest rates. Interest income was $0.4 million for 2008 and
$0.2 million in 2009.
Income
Taxes
Income
tax expense was $0.6 million in 2009 compared to an income tax recovery of $0.3
million for 2008. The Company’s effective tax rate was substantially higher than
the statutory rate in 2009 due to noncontrolling interest charges, offset by
non-deductible stock based compensation. The Company’s effective tax
rate was substantially lower than the statutory rate in 2008 due to
noncontrolling interest charges and losses in certain tax jurisdictions where
the benefits are expected to be realized, offset by non-deductible stock based
compensation.
The
Company’s US operating units are generally structured as limited liability
companies, which are treated as partnerships for tax purposes. The Company is
only taxed on its share of profits, while noncontrolling holders are responsible
for taxes on their share of the profits.
Equity
in Affiliates
Equity in
affiliates represents the income attributable to equity-accounted affiliate
operations. For 2009 and 2008, income of $0.1 million was recorded.
Noncontrolling
Interests
Net
income attributable to the noncontrolling interests was $0.4 million for 2009,
down $1.7 million from the $2.1 million of noncontrolling interest expense
incurred during 2008. Such decrease was primarily due to the Company’s step-up
in ownership of Accent and decreased profitability in the subsidiaries within
the SMS and SCS operating segments who are not 100% owned.
Discontinued
Operations Attributable to MDC Partners Inc.
The loss,
net of an income tax benefit of $0.3 million from discontinued operations in
2009, resulted from the operating results of Clifford/Bratskeir Public Relations
LLC (“Bratskeir”), which was discontinued in 2008 with the completion of the
sale of Bratskeir’s remaining assets in April 2009.
The
loss net of taxes from discontinued operations for 2008 was $3.0 million and is
comprised of the operating results of Mobium, a division of Colle & McVoy,
LLC (“Colle”), Bratskeir, The Ito Partnership (“Ito”) and Margeotes Fertitta
Powell, LLC (“MFP”). MFP was previously discontinued in 2007; the other entities
were discontinued in 2008.
Effective
December 3, 2008, Colle completed the sale of certain assets of its Mobium
division. The operating loss was $0.3 million, net of income tax
benefits.
The
operating loss of Bratskeir for 2008 was $0.7 million net of income tax
benefits.
Effective
June 30, 2008, the Company completed the sale of its equity interests in
Ito. The operating loss of Ito for 2008 was nominal.
In 2007,
the Company ceased operation of MFP. In 2008, the Company recorded a loss of
$2.0 million, net of income tax benefits resulting primarily from the accrual of
lease abandonment costs and severance at MFP.
As a
result, the Company has classified these operations as
discontinued.
Net Income (loss) attributable to MDC
Partners Inc.
As a
result of the foregoing, net income attributable to MDC Partners Inc. recorded
for 2009 was nominal or income of $0.00 per diluted share, compared to a net
loss attributable to MDC Partners Inc. of $3.4 million or $0.13 per diluted
share reported for 2008.
Liquidity
and Capital Resources:
Liquidity
The
following table provides summary information about the Company’s liquidity
position:
|
|
As of and for the
three months
ended
March 31, 2009
|
|
|
As of and for the
three months ended
March 31, 2008
|
|
|
As of and for the
year ended
December 31, 2008
|
|
|
|
(000’s)
|
|
|
(000’s)
|
|
|
(000’s)
|
|
Cash
and cash equivalents
|
|
$ |
46,247 |
|
|
$ |
5,749 |
|
|
$ |
41,331 |
|
Working
capital (deficit)
|
|
$ |
4,703 |
|
|
$ |
(12,175 |
) |
|
$ |
(12,091 |
) |
Cash
from operations
|
|
$ |
560 |
|
|
$ |
(10,450 |
) |
|
$ |
57,446 |
|
Cash
from investing
|
|
$ |
(4,121 |
) |
|
$ |
(9,933 |
) |
|
$ |
(50,186 |
) |
Cash
from financing
|
|
$ |
8,924 |
|
|
$ |
15,586 |
|
|
$ |
(23,510 |
) |
Long-term
debt to total equity ratio
|
|
|
2.10 |
|
|
|
1.44 |
|
|
|
1.42 |
|
Fixed
charge coverage ratio
|
|
|
1.22 |
|
|
|
1.25 |
|
|
|
2.01 |
|
As of
March 31, 2009, and December 31, 2008, $6.3 million and $8.4 million,
respectively, of the consolidated cash position was held by subsidiaries, which,
although available for the subsidiaries’ use, does not represent cash that is
distributable as earnings to MDC Partners for use to reduce its indebtedness. It
is the Company’s intent through its cash management system to reduce outstanding
borrowings under the Financing Agreement.
Due to
the adoption of a new accounting pronouncement, in January 2009, the Company was
required to record its outstanding Put Options on the Company’s balance
sheet. The result of recording these Put Options reduced total equity
by $37.8 million.
Working
Capital
At March
31, 2009, the Company had working capital of $4.7 million compared to a deficit
of $12.1 million at December 31, 2008. The increase in working capital is
primarily due to seasonal shifts in the amounts collected from clients, and paid
to suppliers, primarily media outlets and improvements made in the Company’s
billing and collecting practices. The Company includes amounts due to
noncontrolling interest holders, for their share of profits, in accrued and
other liabilities. At March 31, 2009, $2.3 million remains outstanding to be
distributed to noncontrolling interest holders over the next twelve
months.
The
Company intends to maintain sufficient availability of funds under its Financing
Agreement at any particular time to adequately fund such working capital
deficits should there be a need to do so from time to time.
Cash
Flows
Operating
Activities
Cash flow
provided by continuing operations, including changes in non-cash working
capital, for the three months ended March 31, 2009 was $0.9 million. This was
attributable primarily to income from continuing operations attributable to MDC
Partners of $0.3 million, depreciation and amortization and non-cash stock
compensation of $9.6 million, and an increase of advance billings to clients of
$6.6 million. This cash provided by continuing operations was partially offset
by payments of accounts payable and accrued liabilities, which resulted in a
cash use in operations of $5.1 million, an increase in accounts receivable of
$9.3 million and an increase in expenditures billable to clients of $1.4
million. Discontinued operations attributable to MDC Partners used cash of $0.4
million in the three months ended March 31, 2009.
Cash flow
used in continuing operations, including changes in non-cash working capital,
for the three months ended March 31, 2008 was $11.0 million. This was
attributable primarily to a net operating loss from continuing operations
attributable to MDC Partners of $0.4 million, payments of accounts payable and
accrued liabilities, which resulted in a cash use from operations of $20.3
million, an increase in accounts receivable of $11.6 and an increase in
expenditures billable to clients of $9.8 million. This use of cash was partially
offset by depreciation and amortization and non-cash stock compensation of $11.9
million and an increase of advance billings to clients of $23.4 million.
Discontinued operations attributable to MDC Partners provided cash of $0.5
million in the three months ended March 31, 2008.
Investing
Activities
Cash
flows used in investing activities were $4.1 million for the three months ended
March 31, 2009, compared with $9.9 million in the three months ended March 31,
2008.
In the
three months ended March 31, 2009, capital expenditures totaled $0.8 million, of
which $0.7 million was incurred by the SMS segment, and $0.1 million was
incurred by the SCS segment. These expenditures consisted primarily
of computer equipment and furniture and fixtures. Expenditures for capital
assets in the three months ended March 31, 2008 were $4.2 million. Of this
amount, $2.7 million was incurred by the SMS segment, $0.9 million was incurred
by the CRM segment and $0.6 million was incurred by the SCS segment. These
expenditures consisted primarily of computer equipment and leasehold
improvements.
In the
three months ended March 31, 2009, cash flow used for acquisitions was $3.4
million and related to the settlement of earn-out payments. Cash flow used in
acquisitions was $5.5 million in the three months ended March 31,
2008.
Discontinued
operations used cash of $0.3 million in 2008 relating to capital asset
purchases.
Financing
Activities
During
the three months ended March 31, 2009, cash flows provided by in financing
activities amounted to $8.9 million, and consisted primarily of borrowings under
the Financing Agreement of $9.9 million, repayments of long-term debt of $0.6
million and the purchase of treasury shares for income tax withholding
requirements of $0.3 million. During the three months ended March 31, 2008, cash
flows provided by financing activities amounted to $15.6 million, and primarily
consisted of borrowings under the Financing Agreement of $16.7 million,
repayments of long-term debt of $0.2 million and the purchase of treasury shares
for income tax withholding requirements of $0.9 million.
On June
18, 2007, the Company and its material subsidiaries entered into a $185 million
Financing Agreement with Fortress Credit, an affiliate of Fortress Investment
Group, as collateral agent and Wells Fargo Bank, as administrative agent, and a
syndicate of lenders.
This
current Financing Agreement consists of a $55 million revolving credit facility,
a $60 million term loan and a $70 million delayed draw term loan. Borrowings
under the Financing Agreement will bear interest as follows: (a) LIBOR Rate
Loans bear interest at applicable interbank rates and Reference Rate Loans bear
interest at the rate of interest publicly announced by the Reference Bank in New
York, New York, plus (b) a percentage spread ranging from 0% to a maximum of
4.75% depending on the type of loan and the Company’s Senior Leverage Ratio. In
addition, the Company is required to pay a facility fee of 50 basis points. The
weighted average interest rate at March 31, 2009 was 6.87%.
The
Financing Agreement is guaranteed by the material subsidiaries of the Company
and matures on June 17, 2012. The Financing Agreement is subject to various
covenants, including a senior leverage ratio, fixed charges ratio, limitations
on debt incurrence, limitation on liens and limitation on dividends and other
payments.
Debt as
of March 31, 2009 was $189.6 million, an increase of $8.1 million compared with
the $181.5 million outstanding at December 31, 2008, primarily as a result of
borrowings under the revolving credit facility to fund seasonal working capital
requirements. At March 31, 2009, $30.8 million is available under the Financing
Agreement.
The
Company is currently in compliance with all of the terms and conditions of its
Financing Agreement, and management believes, based on its current financial
projections, that the Company will be in compliance with covenants over the next
twelve months.
If the
Company loses all or a substantial portion of its lines of credit under the
Financing Agreement, it will be required to seek other sources of liquidity. If
the Company were unable to find these sources of liquidity, for example through
an equity offering or access to the capital markets, the Company’s ability to
fund its working capital needs and any contingent obligations with respect to
put options would be adversely affected.
Pursuant
to the Financing Agreement, the Company must comply with certain financial
covenants including, among other things, covenants for (i) total debt ratio,
(ii) fixed charges ratio, (iii) minimum earnings before interest, taxes and
depreciation and amortization, and (iv) limitations on capital expenditures, in
each case as such term is specifically defined in the Financing Agreement. For
the period ended March 31, 2009, the Company’s calculation of each of these
covenants, and the specific requirements under the Financing Agreement,
respectively, were as follows:
|
|
March 31, 2009
|
|
Total
Senior Leverage Ratio
|
|
|
1.87 |
|
Maximum
per covenant
|
|
|
3.25 |
|
|
|
|
|
|
Fixed
Charges Ratio
|
|
|
3.19 |
|
Minimum
per covenant
|
|
|
1.30 |
|
|
|
|
|
|
Minimum
earnings before interest, taxes, depreciation and
amortization
|
|
$ |
65.4 million
|
|
Minimum
per covenant
|
|
$ |
43.0
million
|
|
These
ratios are not based on generally accepted accounting principles and are not
presented as alternative measures of operating performance or liquidity. They
are presented here to demonstrate compliance with the covenants in the Company’s
Financing Agreement, as non-compliance with such covenants could have a material
adverse effect on the Company
Deferred
Acquisition Consideration (Earnouts)
Acquisitions
of businesses by the Company may include commitments to contingent deferred
purchase consideration payable to the seller. These contingent purchase
obligations are generally payable within a one to three-year period following
the acquisition date, and are based on achievement of certain thresholds of
future earnings and, in certain cases, also based on the rate of growth of those
earnings. The contingent consideration is recorded as an obligation of the
Company when the contingency is resolved and the amount is reasonably
determinable. At March 31, 2009, there was $3.4 million of deferred
consideration included in the Company’s balance sheet. Based on the various
assumptions as to future operating results of the relevant entities, management
estimates that approximately $43.6 million of additional deferred purchase
obligations could be triggered during 2009 or thereafter, including
approximately $9.9 million which may be paid in the form of issuance by the
Company of its Class A shares. The actual amount that the Company pays in
connection with the obligations may differ materially from this
estimate.
Other-Balance
Sheet Commitments
Put
Rights of Subsidiaries’ Noncontrolling Shareholders
Owners of
interests in certain of the Marketing Communications Group subsidiaries have the
right in certain circumstances to require the Company to acquire the remaining
ownership interests held by them. The owners’ ability to exercise any such “put
option” right is subject to the satisfaction of certain conditions, including
conditions requiring notice in advance of exercise. In addition, these rights
cannot be exercised prior to specified staggered exercise dates. The exercise of
these rights at their earliest contractual date would result in obligations of
the Company to fund the related amounts during the period of 2009 to 2018. It is
not determinable, at this time, if or when the owners of these put option rights
will exercise all or a portion of these rights.
The
amount payable by the Company in the event such put option rights are exercised
is dependent on various valuation formulas and on future events, such as the
average earnings of the relevant subsidiary through that date of exercise, the
growth rate of the earnings of the relevant subsidiary during that period, and,
in some cases, the currency exchange rate at the date of payment.
Management
estimates, assuming that the subsidiaries owned by the Company at March 31,
2009, perform over the relevant future periods at their trailing twelve-month
earnings level, that these rights, if all exercised, could require the Company,
in future periods, to pay an aggregate amount of approximately $31.4 million to
the owners of such rights to acquire such ownership interests in the relevant
subsidiaries. Of this amount, the Company is entitled, at its option, to fund
approximately $4.0 million by the issuance of the Company’s Class A
subordinate voting shares. In addition, the Company is obligated under similar
put option rights to pay an aggregate amount of approximately $4.0 million only
upon termination of such owner’s employment with such applicable subsidiary. The
Company intends to finance the cash portion of these contingent payment
obligations using available cash from operations, borrowings under its Financing
Agreement (and refinancings thereof) and, if necessary, through incurrence of
additional debt. The ultimate amount payable and the incremental operating
income in the future relating to these transactions will vary because it is
dependent on the future results of operations of the subject businesses and the
timing of when these rights are exercised. Approximately $7.0 million of the
estimated $31.4 million that the Company would be required to pay subsidiaries
noncontrolling shareholders’ upon the exercise of outstanding put option rights,
relates to rights exercisable within the next twelve months. Upon the settlement
of the total amount of such put options, the Company estimates that it would
receive incremental operating income before depreciation and amortization of
$6.0 million.
The
following table summarizes the potential timing of the consideration and
incremental operating income before depreciation and amortization based on
assumptions as described above.
Consideration
(4)
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013 &
Thereafter
|
|
|
Total
|
|
|
|
($ Millions)
|
|
Cash
|
|
$ |
6.4 |
|
|
$ |
0.9 |
|
|
$ |
1.3 |
|
|
$ |
4.0 |
|
|
$ |
14.8 |
|
|
$ |
27.4 |
|
Shares
|
|
|
0.6 |
|
|
|
0.1 |
|
|
|
0.7 |
|
|
|
1.0 |
|
|
|
1.6 |
|
|
|
4.0 |
|
|
|
$ |
7.0 |
|
|
$ |
1.0 |
|
|
$ |
2.0 |
|
|
$ |
5.0 |
|
|
$ |
16.4 |
|
|
|
31.4 |
(1) |
Operating
income before depreciation and amortization to be
received(2)
|
|
$ |
1.6 |
|
|
$ |
0.3 |
|
|
$ |
0.9 |
|
|
$ |
1.8 |
|
|
$ |
1.4 |
|
|
$ |
6.0 |
|
Cumulative
operating income before depreciation and amortization(3)
|
|
$ |
1.6 |
|
|
$ |
1.9 |
|
|
$ |
2.8 |
|
|
$ |
4.6 |
|
|
|
6.0 |
|
|
|
|
(5) |
(1)
|
This amount, in addition to put
options only exercisable upon termination of $4.0 million have been
recognized in Redeemable Noncontrolling Interests on the Company’s balance
sheet in conjunction with the adoption of a new accounting
pronouncement.
|
(2)
|
This financial measure is
presented because it is the basis of the calculation used in the
underlying agreements relating to the put rights and is based on actual
2008 and first quarter 2009 operating results. This amount represents
amounts to be received commencing in the year the put is
exercised.
|
(3)
|
Cumulative operating income
before depreciation and amortization represents the cumulative amounts to
be received by the company.
|
(4)
|
The timing of consideration to be
paid varies by contract and does not necessarily correspond to the date of
the exercise of the put.
|
(5)
|
Amounts are not presented as they
would not be meaningful due to multiple periods
included.
|
Critical
Accounting Policies
The
following summary of accounting policies has been prepared to assist in better
understanding the Company’s consolidated financial statements and the related
management discussion and analysis. Readers are encouraged to consider this
information together with the Company’s consolidated financial statements and
the related notes to the consolidated financial statements as included in the
Company’s annual report on Form 10-K for a more complete understanding of
accounting policies discussed below.
Estimates . The
preparation of the Company’s financial statements in conformity with generally
accepted accounting principles in the United States of America, or “US GAAP”,
requires management to make estimates and assumptions. These estimates and
assumptions affect the reported amounts of assets and liabilities including
goodwill, intangible assets, valuation allowances for receivables and deferred
income tax assets, stock-based compensation, and the reporting of variable
interest entities at the date of the financial statements. The statements are
evaluated on an ongoing basis and estimates are based on historical experience,
current conditions and various other assumptions believed to be reasonable under
the circumstances. Actual results can differ from those estimates, and it is
possible that the differences could be material.
Revenue Recognition. The
Company’s revenue recognition policies are in compliance with the SEC Staff
Accounting Bulletin 104, “Revenue Recognition” (“SAB 104”), and accordingly,
revenue is generally recognized when services are earned or upon delivery of the
products when ownership and risk of loss has transferred to the customer, the
selling price is fixed or determinable and collection of the resulting
receivable is reasonably assured.
The
Company earns revenue from agency arrangements in the form of retainer fees or
commissions; from short-term project arrangements in the form of fixed fees or
per diem fees for services; and from incentives or bonuses.
Non-refundable
retainer fees are generally recognized on a straight-line basis over the term of
the specific customer contract. Commission revenue is earned and recognized upon
the placement of advertisements in various media when the Company has no further
performance obligations. Fixed fees for services are recognized upon completion
of the earnings process and acceptance by the client. Per diem fees are
recognized upon the performance of the Company’s services. In addition, for
certain service transactions, which require delivery of a number of service
acts, the Company uses the Proportional Performance model, which generally
results in revenue being recognized based on the straight-line method due to the
acts being non-similar and there being insufficient evidence of fair value for
each service provided.
Fees
billed to clients in excess of fees recognized as revenue are classified as
advance billings.
A small
portion of the Company’s contractual arrangements with clients includes
performance incentive provisions, which allow the Company to earn additional
revenues as a result of its performance relative to both quantitative and
qualitative goals. The Company recognizes the incentive portion of revenue under
these arrangements when specific quantitative goals are achieved, or when the
Company’s clients determine performance against qualitative goals has been
achieved. In all circumstances, revenue is only recognized when collection is
reasonably assured.
The
Company follows EITF No. 99-19, “Reporting Revenue Gross as a Principal versus
Net as an Agent” (“EITF 99-19”). This Issue summarized the EITF’s views on when
revenue should be recorded at the gross amount billed because revenue has been
earned from the sale of goods or services, or the net amount retained because a
fee or commission has been earned. The Company’s business at times acts as an
agent and records revenue equal to the net amount retained, when the fee or
commission is earned. The Company also follows EITF No. 01-14 “Income Statement
Characterization of Reimbursements Received for Out-Of-Pocket Expenses”. This
issue summarized the EITF’s views that reimbursements received for out-of-pocket
expenses incurred should be characterized in the income statement as revenue.
Accordingly, the Company has included in revenue such reimbursed
expenses
Acquisitions, Goodwill and Other
Intangibles . A fair value approach is used in testing
goodwill for impairment under SFAS 142 to determine if an other than temporary
impairment has occurred. One approach utilized to determine fair values is a
discounted cash flow methodology. When available and as appropriate, comparative
market multiples are used. Numerous estimates and assumptions necessarily have
to be made when completing a discounted cash flow valuation, including estimates
and assumptions regarding interest rates, appropriate discount rates and capital
structure. Additionally, estimates must be made regarding revenue growth,
operating margins, tax rates, working capital requirements and capital
expenditures. Estimates and assumptions also need to be made when determining
the appropriate comparative market multiples to be used. Actual results of
operations, cash flows and other factors used in a discounted cash flow
valuation will likely differ from the estimates used and it is possible that
differences and changes could be material.
The
Company has historically made and expects to continue to make selective
acquisitions of marketing communications businesses. In making acquisitions, the
price paid is determined by various factors, including service offerings,
competitive position, reputation and geographic coverage, as well as prior
experience and judgment. Due to the nature of advertising, marketing and
corporate communications services companies; the companies acquired frequently
have significant identifiable intangible assets, which primarily consist of
customer relationships. The Company has determined that certain intangibles
(trademarks) have an indefinite life, as there are no legal, regulatory,
contractual, or economic factors that limit the useful life.
A summary
of the Company’s deferred acquisition consideration obligations, sometimes
referred to as earnouts, and obligations under put rights of subsidiaries’
noncontrolling shareholders to purchase additional interests in certain
subsidiary and affiliate companies is set forth in the “Liquidity and Capital
Resources” section of this report. The deferred acquisition consideration
obligations and obligations to purchase additional interests in certain
subsidiary and affiliate companies are primarily based on future performance.
Contingent purchase price obligations are accrued, in accordance with GAAP, when
the contingency is resolved and payment is determinable.
Allowance for Doubtful
Accounts. Trade receivables are stated less allowance for
doubtful accounts. The allowance represents estimated uncollectible receivables
usually due to customers’ potential insolvency. The allowance includes amounts
for certain customers where risk of default has been specifically
identified.
Income Tax Valuation
Allowance. The Company records a valuation allowance against
deferred income tax assets when management believes it is more likely than not
that some portion or all of the deferred income tax assets will not be realized.
Management considers factors such as the reversal of deferred income tax
liabilities, projected future taxable income, the character of the income tax
asset, tax planning strategies, changes in tax laws and other factors. A change
to these factors could impact the estimated valuation allowance and income tax
expense.
Stock-based Compensation. The
fair value method is applied to all awards granted, modified or settled on or
after January 1, 2003. Under the fair value method, compensation cost is
measured at fair value at the date of grant and is expensed over the service
period, which is the award’s vesting period. When awards are exercised, share
capital is credited by the sum of the consideration paid together with the
related portion previously credited to additional paid-in capital when
compensation costs were charged against income or acquisition consideration.
Stock-based awards that are settled in cash or may be settled in cash at the
option of employees are recorded as liabilities. The measurement of the
liability and compensation cost for these awards is based on the fair value of
the award, and is recorded into operating income over the service period, that
is the vesting period of the award. Changes in the Company’s payment obligation
are revalued each period and recorded as compensation cost over the service
period in operating income.
Effective
January 1, 2006, the Company adopted SFAS 123(R) and has opted to use the
modified prospective application transition method. Under this method the
Company will not restate its prior financial statements. Instead, the Company
will apply SFAS 123(R) for new awards granted or modified after the adoption of
SFAS 123(R), any portion of awards that were granted after December 15, 1994 and
have not vested as of January 1, 2006, and any outstanding liability
awards.
New
Accounting Pronouncements
In
December 2007, FASB issued SFAS No. 141R “Business Combination” (“SFAS 141R”).
This revised statement retains some fundamental concepts of the current
standard, including the acquisition method of accounting (known as the “purchase
method” in Statement 141) for all business combinations but SFAS 141R broadens
the definitions of both businesses and business combinations, resulting in the
acquisition method applying to more events and transactions. This statement also
requires the acquirer to recognize the identifiable assets and liabilities, as
well as the noncontrolling interest in the acquiree, at the full amounts of
their fair values. SFAS 141R will require both acquisition-related costs and
restructuring costs to be recognized separately from the acquisition and be
expensed as incurred. In addition, acquirers will record contingent
consideration at fair value on the acquisition date as either a liability or
equity. Subsequent changes in fair value will be recognized in the income
statement for any contingent consideration recorded as a liability. SFAS 141R is
to be applied prospectively for financial statements issued for fiscal years
beginning on or after December 15, 2008. Early application was prohibited. The
adoption of this statement did not have a material effect on its financial
statements.
In
December 2007, FASB issued SFAS No. 160 “Non-controlling Interests in
Consolidated Financial Statements” (SFAS 160”). This statement amends ARB No. 51
Consolidated Financial Statements, to now require the classification of
noncontrolling (minority) interests and dispositions of noncontrolling interests
as equity within the consolidated financial statements. The income statement
will now be required to show net income/loss with and without adjustments for
noncontrolling interests. SFAS 160 is to be applied prospectively for financial
statements issued for fiscal years beginning on or after December 15, 2008 and
interim periods within those years. However, this statement requires companies
to apply the presentation and disclosure requirements retrospectively to
comparative financial statements. Early application was prohibited. EITF Topic
D-98 was expanded in 2008 to require the recording of put options as a liability
and a reduction of equity. The adoption of these new statements has
resulted in the Company recording the estimated redemption amount of its
outstanding put options as a reduction of Additional Paid in Capital and an
increase in Redeemable Noncontrolling Interests of $37,849. As of
December 31, 2008, the Company has reclassified $21,751 of minority interest to
Redeemable Noncontrolling Interest, representing Noncontrolling Interests which
would be purchased by the Company pursuant to the exercise of an existing Put
option. In addition, as of December 31, 2008, a portion of minority
interest, which is not subject to put options, has been reclassified as part of
Equity – Noncontrolling Interest. Changes in the estimated redemption
amounts of the noncontrolling interests subject to put options are adjusted
at each reporting period with a corresponding adjustment to
Equity. For the three months ended March 31, 2008, the Company
reclassified net income attributable to the noncontrolling interests below net
income (loss), as a result, the net loss was reduced by $2,125. These
adjustments will not impact the calculation of earnings per share. At
March 31, 2009, the Company reduced its estimated redemption amounts by
$889.
In
March 2008, the FASB issued SFAS No. 161, “Disclosures about
Derivative Instruments and Hedging Activities, an amendment of FASB Statement
No. 133” (“SFAS 161”), which requires enhanced disclosures for derivative
and hedging activities. SFAS 161 will become effective beginning with our first
quarter of 2009. Early adoption is permitted. The adoption of this
statement did not have a material effect on its financial
statements.
In
November 2008, the EITF issued Issue No. 08-6, Equity Method Investment Accounting
Considerations (“EITF 08-6”), which is effective for the Company January
1, 2009. EITF 08-6 addresses the impact that SFAS 141R and SFAS 160 might have
on the accounting for equity method investments, including how the initial
carrying value of an equity method investment should be determined, how an
impairment assessment of an underlying indefinite lived intangible asset of an
equity method investment should be performed and how to account for a change in
an investment from the equity method to the cost method. The adoption of this
guidance did not have an impact on our financial statements.
In April
2008, the FASB issued Staff Position No. FAS 142-3, "Determination of the Useful
Life of Intangible Assets" ("FSP FAS 142-3"). FSP FAS 142-3 amends the factors
that should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under Statement No.
142, "Goodwill and Other Intangible Assets" ("Statement 142"). The intent of
this FSP is to improve the consistency between the useful life of a recognized
intangible asset, as determined under the provisions of Statement 142, and the
period of expected cash flows used to measure the fair value of the asset in
accordance with Statement 141(R). FSP FAS 142-3 was effective for fiscal years
beginning after December 15, 2008 and is to be applied prospectively to
intangible assets acquired subsequent to its effective date. Accordingly, we
adopted the provisions of this FSP on January 1, 2009. The impact that the
adoption of FSP FAS 142-3 may have on our financial position and results of
operations will depend on the nature and extent of any intangible assets
acquired subsequent to its effective date.
In May
2008, the FASB issued Staff Position No. APB 14-1, “Accounting for Convertible
Debt Instruments That May Be Settled In Cash Upon Conversion (Including Partial
Cash Settlement)”, (“FSP APB 14-1”). FSP APB 14-1 addresses the
accounting for convertible debt instruments that, by their stated terms, may be
settled in cash upon conversion including partial cash
settlement. This guidance is effective for fiscal years beginning
after December 15, 2008 and interim periods within those years. The
adoption of this guidance did not have a material effect on our financial
statements.
Risks and
Uncertainties
This
document contains forward-looking statements. The Company’s representatives may
also make forward-looking statements orally from time to time. Statements in
this document that are not historical facts, including statements about the
Company’s beliefs and expectations, recent business and economic trends,
potential acquisitions, estimates of amounts for deferred acquisition
consideration and “put” option rights, constitute forward-looking statements.
These statements are based on current plans, estimates and projections, and are
subject to change based on a number of factors, including those outlined in this
section. Forward-looking statements speak only as of the date they are made, and
the Company undertakes no obligation to update publicly any of them in light of
new information or future events, if any.
Forward-looking
statements involve inherent risks and uncertainties. A number of important
factors could cause actual results to differ materially from those contained in
any forward-looking statements. Such risk factors include, but are not limited
to, the following:
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•
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risks associated with severe
effects of national and regional economic
downturn;
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•
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the Company’s ability to attract
new clients and retain existing
clients;
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•
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the financial success of the
Company’s clients;
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•
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the Company’s ability to retain
and attract key employees;
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•
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the Company’s ability to remain
in compliance with its debt agreements and the Company’s ability to
finance its contingent payment obligations when due and payable, including
but not limited to those relating to “put” options rights and deferred
acquisition
consideration;
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•
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the successful completion and
integration of acquisitions which complement and expand the Company’s
business capabilities; and
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•
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foreign currency
fluctuations.
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The
Company’s business strategy includes ongoing efforts to engage in material
acquisitions of ownership interests in entities in the marketing communications
services industry. The Company intends to finance these acquisitions by using
available cash from operations, from borrowings under its current Financing
Agreement and through incurrence of bridge or other debt financing, either of
which may increase the Company’s leverage ratios, or by issuing equity, which
may have a dilutive impact on existing shareholders proportionate ownership. At
any given time, the Company may be engaged in a number of discussions that may
result in one or more material acquisitions. These opportunities require
confidentiality and may involve negotiations that require quick responses by the
Company. Although there is uncertainty that any of these discussions will result
in definitive agreements or the completion of any transactions, the announcement
of any such transaction may lead to increased volatility in the trading price of
the Company’s securities.
Investors
should carefully consider these risk factors, and the risk factors outlined in
more detail in the Company’s 2008 Annual Report on Form 10-K under the
caption “Risk Factors”, and in the Company’s other SEC filings.
Item 3. Quantitative and
Qualitative Disclosures about Market Risk
The
Company is exposed to market risk related to interest rates and foreign
currencies.
Debt
Instruments: At March 31, 2009, the Company’s debt obligations
consisted of amounts outstanding under its Financing Agreement. This facility
bears interest at variable rates based upon the Eurodollar rate; US bank prime
rate and, US base rate, at the Company’s option. The Company’s ability to obtain
the required bank syndication commitments depends in part on conditions in the
bank market at the time of syndication. Given the existing level of debt of
$149.6 million, as of March 31, 2009, a 1.0% increase or decrease in the
weighted average interest rate, which was 6.87% at March 31, 2009, would have an
interest impact of approximately $1.5 million annually.
Foreign
Exchange: The Company conducts business in four currencies, the US
dollar, the Canadian dollar, Jamaican dollar and the British Pound. Our results
of operations are subject to risk from the translation to the US dollar of the
revenue and expenses of our non-US operations. The effects of currency exchange
rate fluctuations on the translation of our results of operations are discussed
in the “Management’s Discussion and Analysis of Financial Condition and Result
of Operations” and in Note 2 of our consolidated financial statements. For the
most part, our revenues and expenses incurred related to our non-US operations
are denominated in their functional currency. This minimizes the impact that
fluctuations in exchange rates will have on profit margins. The Company does not
enter into foreign currency forward exchange contracts or other derivative
financial instruments to hedge the effects of adverse fluctuations in foreign
currency exchange rates.
The
Company is exposed to foreign currency fluctuations relating to its intercompany
balances between US and Canada. For every one cent change in the
foreign exchange rate between the US and Canada, the Company will incur an
approximate $0.4 million impact to its financial statements.
Item 4. Controls and
Procedures
Evaluation of Disclosure Controls and
Procedures
We
maintain disclosure controls and procedures designed to ensure that information
required to be included in our SEC reports is recorded, processed, summarized
and reported within the applicable time periods specified by the SEC’s rules and
forms, and that such information is accumulated and communicated to our
management, including our Chief Executive Officer (CEO) and Chief Financial
Officer (CFO), who is our principal financial officer, as appropriate, to allow
timely decisions regarding required disclosures. There are inherent limitations
to the effectiveness of any system of disclosure controls and procedures,
including the possibility of human error and the circumvention or overriding of
the controls and procedures. Accordingly, even effective disclosure controls and
procedures can only provide reasonable assurance of achieving their control
objectives. However, the Company’s disclosure controls and procedures are
designed to provide reasonable assurances of achieving the Company’s control
objectives.
We
conducted an evaluation, under the supervision and with the participation of our
management, including our CEO, our CFO and our management Disclosure Committee,
of the effectiveness of our disclosure controls and procedures as of the end of
the period covered by this report pursuant to Rule 13a-15(b) of the Exchange
Act. Based on that evaluation, the Company has concluded that its disclosure
controls and procedures were effective as of March 31, 2009.
Changes
in Internal Control Over Financial Reporting
There
were no changes in the Company’s internal control over financial reporting
identified in connection with the foregoing evaluation that occurred during the
first quarter of 2009 that have materially affected, or are reasonably likely to
materially affect the Company’s internal control over financial
reporting.
PART II. OTHER
INFORMATION
Item 1. Legal
Proceedings
The
Company’s operating entities are involved in legal proceedings of various types.
While any litigation contains an element of uncertainty, the Company has no
reason to believe that the outcome of such proceedings or claims will have a
material adverse effect on the financial condition or results of operations of
the Company.
Item 1A. Risk
Factors
There are
no material changes in the risk factors set forth in Part I, Item 1A of the
Company’s Annual Report on Form 10-K for the year-ended December 31,
2008.
Item 2. Unregistered
Sales of Equity Securities and Use of Proceeds.
None.
Item 4. Submission of
Matters to a Vote of Security Holders
None.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
MDC
PARTNERS INC.
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/s/ Michael
Sabatino
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Michael
Sabatino
Chief
Accounting Officer
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May
1, 2009
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EXHIBIT INDEX
Exhibit No.
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Description
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12
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Statement
of computation of ratio of earnings to fixed charges*
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31.1
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Certification
by Chief Executive Officer pursuant to Rules 13a-14(a) and
15d-14(a) under the Securities Exchange Act of 1934 and
Section 302 of the Sarbanes-Oxley Act of 2002.*
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31.2
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Certification
by the Chief Financial Officer pursuant to Rules 13a-14(a) and
15d-14(a) under the Securities Exchange Act of 1934 and
Section 302 of the Sarbanes-Oxley Act of 2002.*
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|
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32.1
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Certification
by Chief Executive Officer pursuant to 18 USC. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.*
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32.2
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Certification
by the Chief Financial Officer pursuant to 18 USC. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.*
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99.1
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Schedule
of ownership by operating
subsidiary.*
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* Filed
electronically herewith.